The Hedge Fund Association, in conjunction with Bloomberg, hosted the HFA - Bloomberg Shanghai Hedge Fund Panel Discussion: International Hedge Funds and Direct Investment in China, in Shanghai on January 5th, 2013. During the event, three experts shared their insight into the challenges and opportunities in China’s hedge fund industry in 2013. I had the opportunity to attend on behalf of Kapronasia and summarized some of my conclusions from the event here:

The 2nd Annual eTail Conference was held from 27th to 28th November, 2012 in Shanghai. Kapronasia was invited to attend the event to speak on a few payment related topics along with other industry experts. The conference's topics included e-commerce trends and strategies, cross border shopping challenges, and IT implementation on e-payment.

Margin trading is an important part of financial markets, especially for derivatives although the use of margin trading is still somewhat controversial in certain markets. In China, margin trading is relatively new and the phenomenon and behaviors observed in the markets from the use of margin trading are quite different from those of western markets. In order to better understand the markets, its worth taking some time to analyze the differences and provide suggestions to utilize the opportunities from the development of Chinese margin trading market development.

In the past we haven’t spent too much time looking at the development of China’s financial futures market, but if you were to ask any China capital markets observer what some of the most important reforms of the past few years included, the introduction of the financial futures market would be one of them.

The CSRC’s latest figures show that 57 funds obtained QFII (Qualified Foreign Institutional Investor) licenses in the first 10 months of 2012, far more than any previous year since the program’s inception in 2003. This is a positive signal that foreign investors are more keen to invest in China. Moreover, on Nov. 14th, 2012, Chinese regulators decided to expand the quota by 200 billion yuan to specifically attract RQFII investments; it is predicted that the quota will soon be used up and likely regulators will continue to increase the quota amount.

China Mobile, the biggest mobile network operator in China, continues to grow its mobile payment business which was first launched in 2010. At the end of September 2012, China Mobile had 60 million registered mobile payment users with a total transaction value of reached 25 billion RMB, 2.5 times as much as in 2011.

In 2012, other key players in China’s mobile payment market also expanded their business. At the end of October 2012, the number of China Telecom’s mobile payment users exceeded 8 million; China UnionPay also announced that so far it has 4 million mobile payment users, compared with 2 million in 2011. The data from Alipay (China’s biggest third-party payment company) showed that as of the end of May 2012, Alipay had 10 million users conducting payment through their mobile phone and the number was increasing by about 90,000 every day.

We expect that China’s mobile payment business will grow faster in the future, with the number of mobile users surging to 400 million in 2015.

Kapronasia is pleased to announce the next webinar in our ongoing series covering China's Financial Services Industry. The November 21st webinar will be looking at the current status and future development of China's Credit Card industry. More information on the webinar and information on how to register can be found here.

The webinar is free and open to all.

So we’ve just come out of the October holiday here in China and are headed in the final frantic few months before Chinese New Year. The difference this year is the early November once in a decade leadership transition where nearly every Chinese leader and politician will be replaced and/or shifted around in China’s Communist Party. It was never in doubt that the transition would happen towards the end of this year, but it was only in the last few weeks that it became clear it would happen in early November.

This is an important transition for the government and only the second peaceful transition of power in recent China’s recent history. The transition is even more important because of the critical social and economic challenges that the country is facing right now. A slow/stagnant world economy and increased but still limited domestic consumption is limiting China’s economy as a whole which is exacerbating the internal challenges it is facing – one of the most critical being the increasing delta between the haves and have nots. If you have been reading international media recently, we’re starting to see more and more of this discrepancy being uncovered and it does nothing to help the government in the eyes of the people.

More specifically to the financial industry however, the transition means increased change. We’ve seen this already this year especially in the capital markets as the new chief regulators have done quite a bit to open the capital markets this year with increased rumours that regulation on the RFQLP programme should be announced shortly, adding yet another channel for off-shore RMB to come back into China’s mainland markets.

The shift in policy is also indicative of China’s increased awareness of money leaving China. With reports of both wealthy individuals and corporations legally and illegally sending money abroad, the issue which used to be too much hot money coming in, is now too much hot money going out. To a certain extent, this is a bit of a blessing in disguise for China as it will allow regulators to further open the market without risking the hot money inflows – which was viewed as a challenge in the past.

With the party congress set for November of this year, we’re unlikely to see too much more change until after Chinese New Year (Feb 2013). What we should be able to quickly determine though is how open the new leaders are to change and modernization of all industries, not just the financial services industry. As we’ve discussed on our blog before, this will largely depend on how quickly the new leaders can consolidate their power to be able to effect change and in which direction they decide to go.

Regardless, 2013 will be a new watershed for China’s financial services industry. Stay tuned early next year for our 2013 top financial technology trends report to see how we see things changing.

According to the latest semiannual reports issued by China’s commercial banks, e-banking continues to grow in importance as a part of banks’ business. For most of banks, e-banking channels has already contributed to over 60% of total transaction volume with the 5 large commercial banks’ total e-banking transactions showing a 35% growth rate year on year. Benefiting from the advancement of IT and the proliferation of smart mobile phone in China, mobile banking has become increasingly convenient for users and important for banks. 

In order to meet the strong demand for mobile banking, banks continue to update their mobile banking applications and launch new functions to enhance the user experience. For instance, Agricultural Bank released its new iPhone-enabled mobile banking app which not only supports banking transactions but also integrates online shopping. Bank of China launched the first Windows-enabled mobile banking application recently. We expect that in the future banks will offer more value-added services on their mobile banking products through innovations and ensure safe and reliable systems.

Earlier this week, Burberry announced lower than expected earnings which largely disappointed and somewhat scared markets. Their slowdown is global, but a key challenge was declining luxury spend from Chinese consumers – which is seen by many as a bellwether for the rest of a general industry slowdown. We’ve talked about luxury spending in China in the past, but it’s worth considering the implications of a potential slowdown in the luxury industry and the implications if the slowdown is indeed an indicator of a shift in the habits of China’s wealthy.