Workers dismantle iron and steel production facilities in a factory of Baogang Group on August 31 (XINHUA)

1. Supply-Side Structural Reform

As more policies and measures are rolled out throughout China, the country's supply-side structural reform has been gaining momentum, with solid economic figures being posted. In recent years, the international community has been concerned about problems in the Chinese economy such as overcapacity, high debt-to-assets ratios in industrial enterprises and high operation costs. To address these issues, the Chinese Government has deployed supply-side structural reform featuring five major tasks—cutting overcapacity, destocking inventory, deleveraging, cutting costs and strengthening weak links in the economy.

The National Bureau of Statistics has revealed that for 2016, the overcapacity-reduction targets for coal and steel are 250 million tons and 45 million tons, respectively. The whole-year target has been accomplished ahead of schedule, with more being cut than what was previously planned. In terms of destocking, by the end of August, the inventory of finished products from industrial enterprises above the designated size—principal businesses with revenues of more than 20 million yuan ($3.15 million)—had been decreasing for the last five months in a row. By the end of September, the floor-space of unsold commercial residential housing had been in decline for seven months in a row. When it comes to cost reduction, operation costs and businesses' debt-to-asset ratio have dropped. With regard to strengthening weak links in the economy, in sectors such as environmental protection, agriculture, forestry, water conservancy and infrastructure construction, investments are now growing at a rapid pace.

Chief Executive of Hong Kong Leung Chun-ying (third right) and Chairman of Hong Kong Stock Exchange Zhou Songgang (second left) attend the launch ceremony of the Shenzhen-Hong Kong Stock Connect program in Hong Kong on December 5 (XINHUA)

2. Shenzhen-HK Stock Link

Two years after the launch of the Shanghai-Hong Kong Stock Connect program, China introduced another stock trading link between the Chinese mainland and Hong Kong. The stock trading link between Shenzhen, south China's Guangdong Province and Hong Kong was officially launched on December 5, a move aimed at further pushing forward the yuan's internationalization and cementing Hong Kong's status as an offshore yuan hub.

According to some analysts' forecasts, the launch of the Shenzhen-HK link may increase the likelihood of index compiler MSCI adding China's A shares to its influential benchmark index, which could attract billions of dollars of funds into the Chinese stock market.

In June, China's A shares failed to gain inclusion in the MSCI index for the third time. The MSCI Inc. cited accessibility issues as the reason for its decision. A critical requisite for China's A shares to be included in the MSCI index is that global capital can invest in stocks in both the Shanghai and Shenzhen exchanges.

About 2,000 people line up to view real estate projects by taking buses provided by housing developers in Nanjing, east China's Jiangsu Province, on March 5 (XINHUA)

3. Housing Policies Tightened

Since the middle of 2015, real estate prices in large cities have shot up, with the trend also spreading to smaller cities.

Home prices in four first-tier cities—Beijing, Shanghai, Guangzhou and Shenzhen—shook off price drops in June 2015 and began to register accelerating growth. Subsequently, second- and third-tier cities, mostly regional centers, began to witness property price surge as well.

Amidst the nationwide property market frenzy, China's central bank has demanded that Chinese banks step up efforts to rein in home loans. While major cities have set about tackling home mortgage lending, some banks have altogether stopped the issuance of housing loans. Regulatory authorities said they will conduct more supervision and inspections of financial institutions over their issuance of home loans.

In addition to stricter home loan policies, since the beginning of October 2016, many large cities released policies to restrict housing purchases in order to keep the housing price from running out of control.

Wugang Steel workers seek jobs at a recruitment fair in Wuhan, capital of central China's Hubei Province, on March 19 (XINHUA)

4. SOE Reorganizations

In September, the State-Owned Assets Supervision and Administration Commission of the State Council (SASAC), approved the acquisition of the Wuhan Iron & Steel Group Corp. by Shanghai Baosteel Group Corp., which gave birth to China Baowu Steel Group, wrapping up a year of bold state-owned enterprise (SOE) reorganizations.

Though plagued by an economic slowdown, China is pushing for mergers and acquisitions (M&As) among its larger SOEs to enhance efficiency. A 350-billion-yuan ($50.39-billion) national fund was established in September to speed up the process.

From power supply to tourism, consolidation in a number of sectors involving 10 central SOEs has gathered steam at an unprecedented pace this year, such as China National Cotton Reserves Corporation and Food giant Sinograin, China Travel Service Hong Kong Ltd. and China National Travel Service Group Corp., and so on. By now, there are 102 SOEs directly administered by the SASAC.

Two technicians work at an aluminium oxide factory invested in by China Hongqiao Group Ltd. in Pontianak, Indonesia, on May 22 (XINHUA)

5. Robust Outbound Investment

In June, China's retail giant Suning Group announced that it had bought a 70-percent stake in Italian football club Inter Milan, a deal worth 270 million euros ($281.8 million). This is the first time that a Chinese company has become the biggest shareholder of a European elite club.

The year 2016 witnessed surging overseas investment by Chinese businesses. China's outbound direct investment (ODI) in the non-financial sector stood at around 1.07 trillion yuan ($161.7 billion) in the first 11 months, up 55.3 percent on a year-on-year basis, according to data released by the Ministry of Commerce.

Chinese companies completed 561 merger and acquisition deals in global markets between January and November this year.

The investment categories of Chinese companies have been further expanded in overseas markets. High-end manufacturing, information and software technology services were hot areas for China's ODI over the past months.

Major investment destinations were members of the Association of Southeast Asian Nations, Australia, the EU, Russia and the United States.

The trade, services and infrastructure network proposed by China in 2013 envisions the Silk Road Economic Belt and the 21st-Century Maritime Silk Road, covering about 4.4 billion people in more than 60 countries and regions in Asia, Europe and Africa.

Chinese companies signed 7,367 projects including dams, stadiums, airports and power stations, in countries along the routes between January and November, with a contract value of $100.36 billion, up 40.1 percent year on year. These projects accounted for 52 percent of China's newly signed contractual foreign projects.

IMF officials celebrate the inclusion of the yuan into the SDR at the IMF headquarters in Washington, D.C., the United States, on December 14 (XINHUA)

6. The Yuan Joining the SDR

The Chinese currency, the renminbi, was included into the elite reserve currency basket of the International Monetary Fund (IMF) on October 1. This move has the potential to push ahead reforms linked to the currency's internalization and marketization.

The IMF approved the yuan as the fifth elite currency to join the special drawing rights (SDR) basket, which is a foreign exchange reserve asset that includes the US dollar, euro, yen and the British pound.

The renminbi has leapfrogged other currencies to occupy the third-largest share of the new SDR basket at 10.92 percent, following the US dollar's 41.73 percent and the euro's 30.93 percent.

Sun Lijian, an economics professor with Shanghai-based Fudan University, believes that while the yuan now does face a certain level of depreciation pressure against the U.S. dollar due to expectations of further interest rate hikes in the United States, it does not face long-term depreciation pressure.

 A China-Europe train leaves Zhengzhou, Henan Province bound for Hamburg, Germany, on September 10(XINHUA) 

7. FTZ Expansion

In September, China announced the decision to set up seven new free trade zones (FTZs) across the country, bringing the total number to 11, as it looks to replicate the success of previous trials. The new FTZs will be in Liaoning, Zhejiang, Henan, Hubei, Sichuan and Shaanxi provinces as well as Chongqing municipality.

The China (Shanghai) Pilot FTZ, the nation's first, was established in September 2013. Following its success, the government decided to expand to more areas. In April 2015, the second group of three FTZs was inaugurated in Tianjin in the north, Guangdong Province in the south and Fujian Province in the southeast.

With the addition of seven more this year, China is hoping to press ahead with wider reforms, while allowing the regions to tap their unique geographical and industrial advantages for further experiments.

Designed as a testing ground for economic reforms, an FTZ aims to lower the threshold for business people to establish companies, further open up markets to foreign investment and reduce restrictions on capital flows. It also offers special benefits to certain industries like e-commerce, legal services and logistics.

 

Cargo containers await onward shipment at Lianyungang port, Jiangsu Province, on December 14 (XINHUA) 

8. WTO Dispute

At the 15th anniversary of China's accession to the WTO, some member countries refused to honor their commitments of dropping the surrogate country approach to calculate anti-dumping measures against Chinese exports.

In accordance with Article 15 of the accession protocol, signed when China joined the WTO in 2001, the surrogate country approach expired on December 11, 2016.

On December 9, the Japanese Government announced that it will not recognize China as a market economy, has no plans to change its trade policies and will continue to use a third country's prices to determine whether China is selling goods below market value. This makes it relatively easy for Japan to level anti-dumping claims against China.

The U.S. Commerce Secretary Penny Pritzker said on November 23 that the time was "not ripe" for the United States to grant China market economy status, suggesting that old anti-dumping practices would be kept.

Meanwhile, to cut the link with the "non-market economy" list, the European Commission, the EU's executive arm, in November presented a new methodology for its anti-dumping and anti-subsidy calculations, replacing the concept with those of "market distortion." Although the surrogate country approach has been dropped, the EU left open the option to use "international" prices and cost reference in further anti-dumping cases if "market distortion" was found, which, analysts said, is simply another way of extending the previous practices.

So far, China has launched dispute settlement procedures at the WTO by requesting consultations with the United States and the EU regarding the surrogate country approach when calculating anti-dumping measures against Chinese exports.

 

 A Chinese consumer uses both Didi and Uber before the merger of the two car-hailing service providers on August 1 (XINHUA) 

9. Car-hailing Giants Teaming Up

In August, Didi Chuxing and Uber finally agreed to bury the hatchet, ending their costly fight for the largest on-demand transportation market in the world.

Didi Chuxing, or Didi for short, is a homegrown juggernaut resulting from the merger of two Chinese ride-hailing companies—Didi Dache and Kuaidi Dache—in 2015. Uber, meanwhile, is the leading ride-hailing service in the United States and much of the world except for China, which has been a bleeding ground for the Silicon Valley-based startup.

On August 1, Didi announced it will acquire Uber's brand, business operations and data in China. After the deal is completed, Uber will get 5.89 percent of the newly united company with "preferred equity interest," equal to a 17.7-percent economic interest, while other shareholders of Uber China will receive a 2.3-percent economic interest in the new company, according to a statement from Didi.

 

Vanke's Chairman Wang Shi speaks at the company’s annual general meeting of stockholders in Shenzhen, Guangdong Province, on July 8 (XINHUA) 

10. 'Barbaric' Stake Buyouts

A high-profile takeover battle between the management team of China's largest property developer Vanke and insurance company Baoneng drew public attention in the latter half of 2016.

As Baoneng constantly increased its holding of Vanke shares, by September 30, the firms owned by Baoneng had bought 2.8 billion shares of Vanke, accounting for 25.4 percent of the real estate giant's total share capital and 28.83 percent of Vanke A shares.

The head of China's securities regulator condemned leveraged acquisitions by some asset managers using questionable funds as "barbaric." "Any attempt to acquire a majority stake in a listed firm using funds from questionable sources is crossing the line," said Liu Shiyu, head of the China Securities Regulatory Commission.

The China Insurance Regulatory Commission (CICR) has begun to check the "barbaric" behavior of insurers as the government pushes to control financial risks brought about by speculative stake buyouts.

Insurers such as Anbang and Funde Sino Life have also initiated stake buyouts of listed-property developers and undervalued blue-chip companies since 2013.

Insurers had bought stakes in about 120 listed companies by the end of November, raising market and regulator concerns. The CIRC is expected to roll out more policies to regulate the use of insurance capital.

Copyedited by Bryan Michael Galvan

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