Vice-Premier Wang Yang (center) holds a golden key to signal the opening of the 18th China International Fair for Investment and Trade on Monday.
Service sector will be steadily opened-up
China will further open its investment and cooperation system and optimize the environment for foreign investment, Vice-Premier Wang Yang said on Monday.
"China's policy of investment and cooperation will be kept in the long run, although the inbound and outbound investment situation is witnessing big changes," said Wang.
Wang made the remarks at an international investment forum during the 18th China International Fair for Investment and Trade, which opened on Monday in Xiamen, Fujian province.
The annual international investment event provided more than 30,000 potential investment projects and attracted companies and government organizations from 54 countries and regions, according to the organizers.
The competitiveness of the domestic companies in the world's second-largest economy has grown remarkably and there are fundamental changes that foreign investment will have to adapt to, said Wang.
Traditional manufacturing businesses are returning to developed countries and developing economies are boosting efforts to introduce foreign investment, which has affected the international capital flows, he explained.
But he said, "We will not ignore the role that foreign investment plays in the Chinese economy and will not reject foreign-invested companies."
However, according to Wang, China will not simply introduce foreign capital in the future, instead it will look to introduce advanced technology, managerial experience and intelligence resources and build various market-oriented systems in accordance with international practices.
"We will relax the restrictions on foreign investments, and steadily open-up the finance, education, culture and healthcare markets," Wang said.
According to Wang, the Chinese government will strengthen efforts to protect foreign investors' interests by tackling the problems of monopolies, commercial bribery and copyright infringements to improve the domestic investment environment.
This year marks the 30th anniversary of China's first group of national-level economic and technology development zones, and Wang said such zones need to be further transformed and upgraded.
"China's economic and technology development zones should be driven by innovation and they should make better use of foreign investment for their future success," Wang said.
Such zones are also being encouraged to enhance communication with their foreign counterparts to promote new growth models, according to Wang, who pointed out that China's 215 national-level economic and technological development zones realized one-fifth of the country's foreign investment and one-eighth of its GDP in 2013.
Commerce Minister Gao Hucheng said the Chinese government will adhere to its policy of mutual benefits and strive to build an open economic system, actively working with international organizations and governments to promote a healthy recovery of the global economy.
"The annual international investment fair has proved to be an efficient platform to create investment and cooperation opportunities. I hope all participants will take full advantage of this event to boost investment and cooperation," Gao said.
Gao urged domestic economic and technological development zones to play an active role in boosting international investment.
"Such development zones have not only promoted the country's development they have also become an important platform for international investment," Gao said.
By attracting foreign direct investment, catalyzing the development of industrial clusters and adopting new technologies and management practices, the economic and technology development zones have played a key role in China's economic success, said Cai Jinyong, chief executive officer of the International Finance Corporation.
"Successful programs, which can contribute to the long-term future of the zones, are the ones that focus on market demand and are integrated into the domestic economy. The development of any zone should be based on an identified market opportunity," he said.
Zhaocai Bao was designed to connect the investment activities of 300 million individual investors in China with the financing needs of 1 million small and medium-sized enterprises. Its annual sales volume is expected to reach 1 trillion yuan in the next two to three years.
China's largest online payment provider Alipay announced the official launch on Monday of Zhaocai Bao, an Internet finance platform that aims to reshape financing for small businesses to the tune of 1 trillion yuan ($162 billion) within three years.
For investors, the Zhaocai Bao (Money-drawing Treasure) platform offers products with average annualized returns of between 5.4 percent and 6.9 percent. In comparison, the annualized return rate for Yu'ebao, China's largest money market fund, has fallen to about 4.1 percent since its launch in June 2013, while China's one-year fixed-term deposit rate is 3 percent.
Zhaocai Bao is different from Yu'ebao as its major product consists of loans to small businesses, while the latter is a money market fund managed by Tianhong Asset Management.
"We aim to connect the investment activities of 300 million individual investors in China with the financing needs of 1 million small and medium-sized enterprises," said Yuan Leiming, CEO of Zhaocai Bao.
In addition to the higher return rate, Zhaocai Bao has set the threshold for investors at a mere 100 yuan. And risk of bad loans is underwritten by insurance companies.
Although products on Zhaocai Bao are bound by a fixed maturity ranging from three months to three years, investors are allowed to "liquidate" the product before its due date by transferring it via the platform to other investors, after paying a 0.2 percent transaction fee, so they can still enjoy the original annualized return rate.
At the borrowers' end, Yuan said the financing cost for SMEs on Zhaocai Bao is about 7 percent, much lower than the average 18 percent financing cost for small and medium-sized companies, and the time it takes to borrow money can be as short as 10 seconds.
"The traditional approach for banks is to collect small pieces of capital, put them into a pool and then go search for borrowers, which pushes up the overall cost," Yuan said.
"Our capability of cloud computing and big data processing enables direct integration of every piece of capital with the borrowers, which significantly reduces the cost," he said, adding that the average Zhaocai Bao deal totals around 200,000 yuan and that Zhaocai Bao takes a 0.1 percent transaction fee on every deal.
Since a test run in April, Zhaocai Bao has already sold 11.4 billion yuan in financial products to a half-million customers, according to its official Web page, which is linked to Taobao.com. Forty financial institutions are currently working with the platform, while another 100 are waiting in the line.
By comparison, Yu'ebao currently has about 100 million users with transactions totaling 600 billion yuan.
"The aim for Zhaocai Bao is to reach 1 trillion yuan annual sales volume over the next two to three years," Yuan said.
According to independent statistics, China is home to 800 online lending websites, with close to 100 billion yuan worth of transactions in 2013.
Chen Jin, CEO of China's first online insurance vendor, Zhong'an Insurance - which is also one of Zhaocai Bao's partners - said the transition from Yu'ebao to Zhaocai Bao reminds him of Taobao.com and Tmall.com, and marks a strategic transformation for China's largest e-commerce conglomerate, Alibaba Group Holding Ltd.
Wu Zhigang, chief information officer for China National Investment and Guaranty Co, said that as most of China's individual investors are vulnerable to risks, a platform like Zhaocao Bao could effectively lower those by offering a high degree of information and comparisons.
"It's a good example of inclusive finance," he said.
Shanghai announced new measures to encourage private investment in small and micro companies, the latest move to boost venture capital in the city.
The local government said in an online statement yesterday that it is striving to build Shanghai into an international venture capital center.
By 2017, the city is expected to accumulate an additional 100 billion yuan (US$16 billion) in capital for investing in innovative companies. The city also forecasts attracting an extra 1,000 venture capital professionals and 100 influential venture capital firms in a bid to help start-up companies receive the guidance they need.
The city's Venture Capital Investment Guidance Fund increased 1 billion yuan annually in the past three years. The fund invests in targeted sectors and also serves as a guide for privately owned funds. District and county-level governments are encouraged to establish similar funds.
Shanghai plans to simplify foreign investment procedures in domestic venture capital firms by piloting a foreign exchange settlement trial.
State-owned enterprises are also being encouraged to form VC firms.
The new measures are part of the government's efforts to support small and micro companies in Shanghai. Apart from direct financing solutions, Shanghai has also encouraged banks to lend money to cash-strapped small companies.
Executive Deputy Mayor Tu Guangshao's said earlier this week that Shanghai will improve fundraising services for small and micro companies.
There were about 370,000 small and micro enterprises in the city as of the end of 2013. They accounted for 97.1 percent of incorporated companies and provided 54 percent of the city's jobs.
Elsewhere, the People's Bank of China's Shanghai Headquarters agreed to loan 1 billion yuan (US$161.1 million) to Shanghai Rural Commercial Bank.
A booth showcasing Guangdong-based businesses at an expo in Guangzhou, the province's capital. Guangdong is currently seeking central government approval of a Guangdong-Hong Kong-Macao free trade zone. Provided to China Daily
Southern province aims to capitalize on links with neighboring regions
The Guangdong provincial government has vowed to realize liberalization of trade in services in the South China province and its neighboring Hong Kong and Macao special administrative regions by this year through CEPA (the Closer Economic Partnership Arrangement).
"It is a task assigned to Guangdong by the State Council," Vice-Governor Xu Shaohua told a Monday news conference. "We are striving for the central government's approval of specific preferential projects and policies.
"At the same time, we will open up more fields for investors from Hong Kong and Macao, including those in the service sector, using a 'negative list'."
Xu also said Guangdong is currently seeking central government approval of a Guangdong-Hong Kong-Macao free trade zone.
"We are talking with ministries about the construction plan and preferential policies," Xu said.
At a joint meeting between Guangdong and Hong Kong in September, Guangdong Governor Zhu Xiaodan said that the new free trade zone will focus on liberalizing trade and building a platform for the cooperation in the high-end service industry, capitalizing on Hong Kong's reputation as a premier international finance center.
A focus on liberalizing trade in services will set this free trade zone apart from the China (Shanghai) Pilot Free Trade Zone, which focuses on financial openness, according to Lin Jiang, dean of the public finance and taxation department of Lingnan College at the Guangzhou-based Sun Yat-sen University.
"The volume of trade in services has surpassed that of trade in goods in international trade," said Lin, who also is vice-director of the university's research center of Pearl River Delta, Hong Kong and Macao.
"The Guangdong-Hong Kong-Macao free trade zone is the pilot zone in China to make breakthroughs in fields such as offering tax refunds for service exports, which are intangible goods," Lin said.
"Liberalizing trade in services also answers the province's need for upgrading and transforming its processing trade. That's why the province doesn't stress liberalizing trade in goods," said Lin, who gave as examples of modern service industries high-end design and management consultancies.
Zhu also noted at the September meeting that the new free trade zone will help adapt the mainland's financial management mechanism to international practices in Hong Kong.
Lin said it will benefit the province to make business laws and regulations according to international practices in Hong Kong, since that will be one of the free trade zone's major incentives for international investors, compared with the Shanghai free trade zone.
Xu listed several items on the Guangdong government's action plan for liberalizing trade in services in the zone. They include: relaxing or canceling restrictions on Hong Kong and Macao investors' qualifications, shareholding ratios and/or scope of business; promoting mutual attestation of professional qualifications; and exploring possible business modes for individual professional services.
"The Hengqin New Area in Zhuhai, the Nansha New Area in Guangzhou and the Qianhai experimental zone in Shenzhen are the three areas opened up for Hong Kong service industry," Xu said. "In addition, Zhongshan, Foshan and Dongguan cities are proposing platforms to attract investors from Hong Kong and Macao."
The latest announced preliminary plan of the Guangdong-Hong Kong-Macao free trade zone includes the three new areas and experimental zones plus Guangzhou Baiyun International Airport, taking up an area of more than 1,300 square kilometers, which is 47 times of that of the Shanghai free trade zone.
Lin warned that it would be a challenge for the Guangdong government to figure out a way to coordinate so many areas.
Part of the reason for Monday's news conference was to interpret the provincial Party committee's suggestions for Guangdong's implementation of the central government's comprehensive reforms.
The suggestions were approved by the Third Plenum of the 11th General Assembly of the Guangdong Provincial Party Committee, held last weekend in Guangzhou.
"To further open up the province, Guangdong will also strengthen its cooperation with the US and European developed countries by establishing overseas offices of economic trade in these countries," Xu said, adding that an office in Germany already has been set up.
"This is to get in touch directly with big multinational corporations to attract investments and technologies that will assist in upgrading and transforming Guangdong's economy," he said.
Guangdong, the largest Chinese trader for ASEAN countries, also will further promote its foreign trade with these countries and spearhead the central government's strategy of building the Maritime Silk Road of the 21st century.
Yu'ebao (Leftover Treasure). an Alibaba personal finance product, had 43.03 million users with aggregate deposits of 185.3 billion yuan (30.4 billion U.S. dollars) at the end of 2013.
Yu'ebao is an online fund established by Alipay, China's largest third-party payment platform and subsidiary of Alibaba, part of China's biggest online shopping mall, togetheer with the private Tianhong Fund.
"Investments" in the fund have brought 1.79 billion yuan in profits to users since its launch in June 13 this year, according Alipay on Wednesday.
Yu'erbao allows Alipay customers to invest any balance in thier accounts with the Tianhong Fund and has already become the largest fund of its kind in China.
Its users come from all over China: more than 2,000 counties and cities in 31 provincial-level administrative regions with an average deposit of 4,307 yuan per user.
The Shanghai Stock Exchange has started simulated trading in equity options, part of a drive by regulators to expand investors' risk-hedging options.
Simulated trading began on Thursday morning, the SSE confirmed to China Daily, and more than 60 securities firms took part.
The shares of Ping An Insurance Group Co of China Ltd, SAIC Motor Corp Ltd, the China 50 ETF and the Shanghai SSE180 ETF were used in the exercise.
The exchange-traded funds track the top 50 and top 180 yuan-denominated stocks on the SSE.
In early December, SSE Chairman Gui Minjie told a forum that preparations "are almost complete" for launching options on individual stocks.
Single-stock options are essentially equity derivatives, giving buyers the right - but not the obligation - to buy or sell a stock at a fixed price within a certain period or on a set date, said Tony Sun, a strategist with Shanghai Tebon Fund.
The options "will allow investors to hedge their positions more effectively. We have limited financial instruments now, but as reform continues and China's financial markets become more global, innovation is a necessity," said Sun.
China introduced equity index futures in 2008, and those instruments remain the only equity derivatives in use. The regulators expanded a pilot program in August 2012 to boost margin trading.
In February, a new pilot was launched to enable securities lending and short-selling of blue chip stocks.
"Individual stock options can be seen as a form of insurance that reduces trading risks. However, options trading prices can be very volatile. Investors still have to be aware of the risks caused by leveraging and volatility," said Xiong Jinqiu, an independent financial commentator.
The China Securities Journal reported earlier this month that the SSE may officially introduce formal equity options trading in April. Some analysts believe the move is meant to stimulate investment in China's blue chips, which have been trading at depressed valuations.
The average price-earnings ratio for the SSE, where most of China's blue chip companies are listed, stands at only 11 times 2012 earnings. On the Shenzhen exchange, which is dominated by small-cap companies, the average ratio is 28.
Change for WMPs
Another development involving the liberalization of the financial markets took place on Wednesday, this one involving wealth management products.
WMPs will be allowed to invest directly in fixed-income products on domestic securities markets, the China Securities Depository and Clearing Corp announced.
The notice said that WMPs will be allowed to open accounts at the Shanghai or Shenzhen stock exchanges. Investment will be confined to fixed-income products, including exchange bonds, credit-backed securities and preferred shares. The latter are often classified as fixed-income products because of their fixed dividend.
Analysts said that the move on WMPs is intended to provide a bridge "linking" interbank market liquidity with the nation's stock exchanges, even though WMPs can't make direct stock investments at this stage.
The outstanding balance of WMPs stood at 9.92 trillion yuan ($1.63 trillion) as of Sept 30, the China Banking Association said earlier this month.
The figure has more than doubled since the end of 2011, and it's up from 7.1 trillion yuan at the end of 2012.
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