Supply chain hopes as Shanghai reopens

There are hopes that pressure on global supply chains will ease as Shanghai fully reopens later this week from a Covid-19 lockdown that has largely immobilised the city and its port since March.

China’s most populous city, will ease testing requirements from Wednesday for people who want to enter public areas, said city government spokeswoman Yin Xin, adding these moves should encourage work resumption.

“The current epidemic situation in the city continues to stabilise and improve,” Yin said, adding Shanghai’s strategy was now “pivoting towards normalised prevention and control.” Bus services within the Pudong New Area, home to Shanghai’s largest airport and the main financial district, will fully resume from today, officials said.

Shanghai’s port, which is the world’s largest and handles one-fifth of China’s shipping volumes, has been operating over the period, but a sharply reduced capacity. Many shipments have either been cancelled, postponed or rerouted to other Chinese mega-ports such as Ningbo-Zhousan.

With the return to normal activities scheduled for 1 June, the port is set to move into overdrive as manufacturers try to fulfil backlogs, with serious knock-on effects around the world. The authorities have been slowly relaxing curbs, with a focus on resuming manufacturing. Shanghai has already allowed key manufacturers in the auto industry, life sciences, chemicals and semiconductors to resume production since late April.

More citizens have been allowed outdoors, and more businesses permitted to reopen, though many residents remain largely confined to their housing compounds, and most shops limited to deliveries.

The authorities approved 240 financial institutions in the city for reopening from Wednesday, state-run Shanghai Securities News reported at the weekend, adding to a list of 864 firms released earlier this month. That is out of a total of around 1,700 financial firms in Shanghai.

The newspaper reported on Saturday that more than 10,000 bankers and traders who have been living and working in their offices since the start of lockdown were gradually returning home.

Shanghai is also a major manufacturing hub, so the lockdowns have had a significant impact, with US tech multinational Cisco warning of disruption to supplies of parts it needs for power supplies. Other major corporates such as Foxconn, Tesla, and Toyota, have all ceased or slowed production. Chinese chipmaker SMIC maintained some production output by having staff move either into its plants, or into a Covid-free zone surrounding them.

The city has offered some tax rebates for companies and allowed all manufacturers to resume operations from the start of June as the authorities roll out a range of policies to restart an economy impacted by the Covid lockdowns.

The financial hub will accelerate approvals for property projects and supply new residential developments, according to a plan issued by the Shanghai municipal government. The quota for car ownership this year will be increased by 40,000, a purchase tax for some passenger vehicles will be reduced and subsidies will be given to electric car buyers.

Shanghai’s administrators have also announced subsidy schemes for industries including software development. Free or low-cost broadband services for small- to medium-sized enterprises (SMEs) is another stimulus initiative. Some SMEs will be eligible for free software that it is hoped will accelerate their digital transformation efforts.

The city’s government even hopes that the lockdowns will see businesses accelerate development of digital pandemic-management tools.

Hong Kong finance chief defends security law

China’s wide-ranging security law for Hong Kong, imposed nearly two years ago following prolonged social unrest in 2019, has further consolidated the city's role as an international financial centre, according to Paul Chan Mo-po, financial secretary of the Hong Kong Special Administrative Region (HKSAR).

In his weekly blog, Chan claimed that the law, which took effect at the end of June 2020 and makes it easier to punish protesters while also reducing Hong Kong's autonomy, has restored stability and safety to the city after the unrest, and that people's rights and freedoms are now better protected.

“The figures say it all. Initial public offering (IPO) funds raised in Hong Kong exceeded HK$650 billion (US$82.8 billion) since the implementation of the law, accounting for an increase of more than 30% from the same period before the enactment of the law,” he wrote.

“After years of political turmoil in Hong Kong caused by foreign and external forces, and the ‘black violence’ in 2019, the Hong Kong national security law has safeguarded the security of the country and Hong Kong … and created a safe and stable environment for society.”

Average daily turnover in the local stock market jumped almost 60%, compared with the 12-month period before the law came into effect, reaching HK$150 billion.

Chan also referred to the war in Ukraine, which he used as an opportunity to attack the US rather than Russia. As a fully open international financial centre, Hong Kong must make different preparations and plans for various risks as the geopolitical situation continues to be tense, he noted.

“The recent Russia-Ukraine conflict has made people realise how the US would weaponise its own currency and certain international financial systems to twist and interfere with the operation of the international financial market,” Chan claimed.

“We must clearly recognise the fundamental truth that national security is the premise of economic development, and economic development is the guarantee of national security.”

The finance chief also announced also that HKSAR authorities will further simplify rules on secondary listings for US-listed Chinese companies and make more efforts to strengthen Hong Kong’s role as a bridge between the Chinese mainland and the rest of the world.

Chan suggested that this contrasted with the recent intensifying crackdown by the US government on Chinese companies listed in the US and would further deter companies from seeking IPOs in the US and accelerate the process for US-listed Chinese companies shifting toward the mainland or Hong Kong markets.

Since 2019, a total of 21 US-listed Chinese stocks have shifted to Hong Kong through secondary listings or dual listings, Chan said, accounting for over 70% of the total value of all US-listed Chinese stocks in terms of market capitalisation.

In October 2021, Hong Kong Exchanges & Clearing (HKEX) introduced A50, its equity index futures contract tracking the MSCI China A50 Connect Index to make it easier for international investors to bet on Chinese stocks. Although Hong Kong is beginning to make inroads analysts suggest that rival Singapore Exchange (SGX), which has had a monopoly since 2006, still commands 95% of volume.

Chan suggested that China’s influence and the institutional advantages of the “one country, two systems” policy allowed Hong Kong to build a path for successful development amid the changing international environment and that connectivity is one of Hong Kong’s unique advantages that other markets find difficult to copy. Initiatives have included the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, to the Bond Connect - a mutual bond access programme between the mainland and Hong Kong.

Separately the China Securities Regulatory Commission (CSRC) announced that it has agreed to include exchange-traded funds in stock connect programmes with Hong Kong. The formal launch date will be announced later, as preparations will take about two months.

Hong Kong’s next leader, chief executive-elect John Lee Ka-chiu, is visiting Beijing and is expected to meet President Xi Jinping today as he accepts his appointment letter as the special administrative region’s (SAR) next leader from Premier Li Keqiang.

Lee, who officially takes office at the end of June, is a former police officer and security chief who oversaw the crackdown on Hong Kong’s democracy movement. He was named by Beijing as successor to Carrie Lam earlier this month.

Paraguay bill regulates crypto mining and trading

Cryptocurrency regulation in Paraguay is progressing steadily. A crypto bill introduced in the Senate last December was approved last week with some modifications by the country’s Chamber of Representatives and would regulate cryptocurrency mining and trading.

The bill, which contains definitions and rules for crypto mining, will now return to the Senate, which will have up to 90 days to discuss the contents and propose changes to the structure of the document. Then, if approved, the bill will be ready for presidential sanction.

The legislation aims to attract international miners to Paraguay, which has cheap electricity costs at around 5 cents per kilowatt hour, so cryptocurrency mining poses a lucrative opportunity for the country. Analysts expect that more South American countries where currency devaluation is a prominent issue will follow suit.

Should the Paraguay bill become law, individual and corporate miners will have to request authorisation for industrial electricity consumption and then apply for a licence. The proposal also creates a registry for any individual or legal entity aiming to provide crypto trading or custody services for third parties, although the concept of exchange is not included.

Russia imposes curbs on Intesa and UniCredit units

Russia’s central bank has imposed temporary restrictions on the current accounts of Italian individuals and companies that bank with the local units of Italy’s Intesa Sanpaolo and UniCredit, according to reports.

Both lenders received letters from the Bank of Russia stating that from 25 May for a period of one year, Italian individuals and firms with accounts at the two lenders’ Russian units cannot withdraw funds without permission from their local management. Those individuals and companies will be barred from opening new accounts, according to individuals who asked to remain anonymous.

Deposits that lift an account's balance above €100,000 euros (US$107,150) are also banned, in a measure matching one imposed by the European Union on Russian nationals, the sources said. Also, Italian companies and citizens who do not have a Russian residency permit would not be allowed to open new accounts, they added.

The Italian embassy and its general consulates in Russia bank with Intesa, Italy's biggest lender. The Italian general consulate in Moscow said on its website it regretted the difficulties faced by Russian citizens due to the problems Banca Intesa was encountering in executing transactions concerning consular duties.

The Italian embassy separately mentioned on Instagram the restrictions introduced by the Bank of Russia which hampered the payments for consular duties.

Following the invasion of Ukraine on 24 February, Intesa has said it is conducting a strategic review of its presence in Russia, where it serves corporate clients with a staff of around 980.

UniCredit runs Russia's 14th largest bank and plans to exit the country although it has yet to secure a deal. Reports citing individuals people close to the process state that the planned withdrawal is complicated by the bank's determination not to destroy value in a sale.

CEO Andrea Orcel has said escalating international sanctions have left only a "very small window" to pull out, adding it could only happen if the bank found a solution that was not detrimental to its 4,000 Russian staff and 1,250 European corporate clients.

India plans graded approach for introducing digital currency

The Reserve Bank of India (RBI) said that it intends to adopt a graded approach to the introduction of a central bank digital currency (CBDC) or digital rupee.

“The Reserve Bank is engaged in the introduction of a central bank digital currency (CBDC) in India. The design of CBDC needs to be in conformity with the stated objectives of monetary policy, financial stability and efficient operations of currency and payment systems,” the bank declared in its 2021-22 annual report.

The RBI added that it has been exploring the pros and cons of introducing a digital rupee and the appropriate design elements of CBDCs that could be implemented with little, or no disruption are under examination.

India’s Finance Minister Nirmala Sitharaman announced the central bank’s plan to launch a digital currency in February while presenting the Union Budget 2022-23.

The RBI report concludes: “An appropriate amendment to the RBI Act, 1934 has been included in the Finance Bill, 2022 [which] has been enacted, providing a legal framework for the launch of CBDC. Its Deputy Governor T. Rabi Sankar said last month that central banks would go about launching a CBDC “in a very calibrated, graduated manner, assessing impact all along the line.”

The RBI is also maintaining an anti-crypto stance. Governor Shaktikanta Das recently warned last week about investing in the crypto market after the collapse of cryptocurrency terra (LUNA) and stablecoin TerraUSD (UST).

Ripple CEO says IPO again under consideration

Ripple’s chief executive Brad Garlinghouse says that the possibility of an initial public offering (IPO) once the ongoing lawsuit brought by the US Securities and Exchange Commission (SEC) against the network ends. The SEC alleges that Ripple conducted an illegal securities offering through sales of XRP, the world’s sixth-biggest cryptocurrency.

The payments giant – which has both competed against and partnered with SWIFT in recent years – has long been considering an IPO and in an interview with CNBC Garlinghouse revealed that Ripple will again explore the possibility once the SEC’s lawsuit against XRP ends. The action has been ongoing for nearly 15 months, but Garlinghouse expects it to end later this year. he told CNBC.

“I think we want to get certainty and clarity in the United States with the US SEC,” he commented. “You know, I'm hopeful that the SEC will not slow that process down any more than they already have.”

XRP has been used to facilitate cross-border payments and convert it to fiat, which considerably lowers the transaction cost.

Ripple network “whales” (crypto slang for individuals/institutions holding large amounts of coins in a specific cryptocurrency) holding between one and 10 million XRP have continued accumulation reports FXStreet.com and hold the highest percentage of the asset's supply in two months.

It adds that despite the recent crypto market crash that wiped billions in market value from cryptocurrencies, analysts believe XRP could recover soon.

Westpac NZ strengthens liquidity risk management

Westpac New Zealand has been commended by the Reserve Bank of New Zealand “for moving in the right direction” to improve the management of its liquidity risks and surrounding culture, which the RBNZ had strongly criticised in March 2021.

A new independent report, prepared by Deloitte, found that Westpac NZ’s repatriation of its liquidity model from its parent to New Zealand and other risk management enhancements have led to an overall improvement in its liquidity control environment.

“We are encouraged to see that Westpac NZ has taken the necessary steps to improve its liquidity risk management and risk culture by increasing its resourcing and improving its governance processes,” said deputy governor Christian Hawkesby.

“We expect that the momentum built to date will allow Westpac NZ to continue the overall transition from a reactive, to a proactive risk culture.”

Back in March 2021 the RBNZ raised concerns around Westpac NZ’s risk governance processes, citing “material failures to report liquidity correctly” and operating “outside of its own risk settings for technology for a number of years”.

The RBNZ required the bank to provide two independent reports to provide assurance that the actions it takes to improve the management of liquidity risks, and the culture that enabled repeated compliance failures, prove effective. Until it was satisfied that the remediation work was complete and effective, the RBNZ increased Westpac NZ’s required holding of liquid assets.

An earlier independent report on Westpac NZ’s risk governance, published last November by management consulting firm Oliver Wyman, found little improvement.

“The report’s findings highlighted material risks to effective risk governance and noted that the role played by the board fell short of the standard expected of an organisation of the bank’s scope and scale,” said RBNZ’s deputy governor and general manager of financial stability at the time, Geoff Bascand.

“The report found there had been historic underinvestment in risk management capabilities at the bank with investment appearing reactive, rather than strategic.”

Deloitte’s more recent, more positive report should help improve relations between the RBNZ and Westpac, which reached a low in March 2021 when Westpac said it was considering a demerger of its New Zealand subsidiary in response to the RBNZ sanctions and the county’s new stringent capital rules.

Three months later Westpac backtracked on its demerger threat by announcing that it would retain full ownership of its New Zealand business, after a review found the such a move would not be in the best interests of its shareholders.