EU, Brexit to inspire China’s bid for mega market?

Panoramic view of Hong Kong-Zhuhai-Macau Bridge is seen. (Shutterstock)
Updated 28 June 2019
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EU, Brexit to inspire China’s bid for mega market?

HONG KONG: Some in China’s central bank are looking to draw inspiration from the EU and Britain’s relationship with the common market to help shape how China integrates its southern economic powerhouse with Hong Kong and Macau.

The Greater Bay Area already has a combined economy roughly the same size as Australia but the region of 11 major cities is relatively divided — not least because Hong Kong and Macau have their own currencies and legal systems that make integration a difficult task.

The central bank’s branch in Shenzhen, under President Xing Yujing, produced a 295-page report on financial and economic integration in the bay, which suggested building a single market akin to the 28-state EU. The report was penned with China Merchants Bank’s chief economist and published last month.

While the report highlights some of the benefits of European integration, it also acts to underline the challenges facing China in trying to harness the promise of an area that already houses worldscale financial markets, industrial centers and technology sectors.

Market experts say that Hong Kong and Macau would have to give up some autonomy in setting rules and standards, and like Britain, decide on the degree to which they are willing to drop barriers to allow the freer movement of people and capital.

In the report, Xing made no bones about promoting the free movement of people and capital in the bay, and learning from proposals for Britain’s exit from Europe — a proposition previously unexplored by Chinese officials, at least in public.

“European integration has enhanced the welfare of the European people,” the Shenzhen branch of People’s Bank of China told Reuters in a statement.

It spelled out that the suggestions do not represent official policy positions.

The UK has made “plenty of detailed, professional arrangements in ... minimizing Brexit’s impact (while) maintaining integration with European economy and finance,” it added.

The European common market embraced the free movement of labor, which the Greater Bay Area should endorse to “maximize labor market productivity,” Gary Smith, London-based managing director at Barings Investment Institute said.

“That’s the way that the economic benefit is maximized. If it doesn’t happen, then authorities are limiting potential gains,” he said.

While Europe has abolished border controls between 26 countries, there are checkpoints between Hong Kong, Macau and mainland China, under the “One Country, Two Systems” arrangement, which ensures the two cities keep their way of life under Chinese rule.

For a potential solution, Xing pointed to Britain’s idea of a “soft” border with Ireland after Brexit, which aims to continue a free flow of goods and people between the Republic of Ireland and Northern Ireland.

An electronic border could be installed in the bay, whereby businesses pay tariffs online after crossing it, Xing’s report recommended.

She also floated an EU-style “passporting” system for financial services — the ability for those with regulatory approval in one jurisdiction to operate across many in a common area — a policy that could be rolled out across China later.

Yet for financial integration to work, local officials will need to give up some power. “If you had no over-arching authority, you could see Shenzhen and Hong Kong competing on financial markets,” said Smith.

Passporting, for example, requires rules and standards across the area to be aligned, which “inevitably takes away a lot of rule-making autonomy” from local authorities, Mark Simpson, partner at Baker McKenzie in London.

However, the concept of passporting is already embedded to a degree in schemes such as Stock Connect, which allows Hong Kong and mainland-based investors mutual market access, said James Lau, who heads the city’s Financial Services and the Treasury Bureau.

Since mainland China has capital controls, Stock Connect comes with ceilings on trading activity and a closed loop of capital flows — investors must convert gains back into their home currencies.

Xing’s research showed a freer capital regime would be good for long-term growth in the bay, but warned of the “vicious cycle” of large outflows and yuan depreciation pressure if all controls are let loose.

Preserving these checks on capital flows will make it harder to promote the yuan’s usage in the bay — another goal of Xing’s — said Peter Reynolds, Greater China co-head of financial services at consultancy Oliver Wyman.

While Beijing may worry about the free flow of capital, Hong Kong could fret over the free flow of people that a more open system might allow.

“That’s one of the major reasons why the UK is exiting (from the EU). It’s the free flow of people,” said Hong Kong’s Lau.

 


BMW picks insider Zipse as CEO to catch up with rivals

Oliver Zipse
Updated 20 July 2019
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BMW picks insider Zipse as CEO to catch up with rivals

  • German giant has lost ground to Mercedes-Benz and Tesla as tech steps up

FRANKFURT: BMW has named Oliver Zipse as its new CEO, continuing the German carmaker’s tradition of promoting production chiefs to the top job even as the auto industry expands into new areas such as technology and services.
Hailing Zipse’s “decisive” leadership style, BMW hopes the 55-year-old can help it win back its edge in electric cars and the premium market  from rival Mercedes-Benz.
But some analysts questioned whether Zipse was the right choice with new fields such as software and services like car-sharing becoming increasingly important.
“What is intriguing is the cultural bias to appoint the head of production. It works sometimes but ... being good at building cars is not a defining edge the way it was 20 years ago,” said Jefferies analyst Philippe Houchois.
Current CEO Harald Krueger, and former chiefs Norbert Reithofer, Bernd Pischetsrieder and Joachim Milberg were all former production heads.
Zipse joined BMW as a trainee in 1991 and served as head of brand and product strategies and boss of BMW’s Oxford plant in England before joining the board.
He will become chief executive on Aug. 16, taking over from Krueger who said he would not be available for a second term.
“With Oliver Zipse, a decisive strategic and analytical leader will assume the Chair of the Board of Management of BMW. He will provide fresh momentum in shaping  the future,” said Reithofer.
Zipse helped expand BMW’s efficient production network in Hungary, China and the US, in a move that delivered industry-leading profit margins.
Under Krueger, BMW was overtaken in 2016 by Mercedes-Benz as the best-selling luxury car brand.
It also had an early lead over US  rival Tesla in electric cars, but scaled back ambitions after its i3 model failed to sell large numbers.
Reithofer initially championed Krueger’s low-key consensus-seeking leadership, but pressured him to roll out electric vehicles more aggressively, forcing Krueger to skip the Paris Motor Show in 2016 to reevaluate BMW’s electric strategy.
Krueger’s reluctance to push low-margin electric vehicles led to an exodus of talented electric vehicle experts, including Christian Senger, now Volkswagen’s (VW) board member responsible for software, and Audi’s Markus Duesmann, who is seen as a future CEO of the company.
Both were poached by VW CEO Herbert Diess, a former BMW board member responsible for research who was himself passed over for BMW’s top job in 2015.
VW has since pushed a radical 80 billion euro ($90 billion) electric car mass production strategy, and a sweeping alliance with Ford.

Other skills
“A CEO needs to have an idea for how mobility will evolve in the future. This goes far beyond optimising an existing business,” said Carsten Breitfeld, chief executive of China-based ICONIQ motors, and former BMW engineer. “He needs to build teams, attract talent, and promote a culture oriented along consumer electronics and internet dynamics.”
German manufacturers have dominated the high-performance market for decades, but analysts warn shifts towards sophisticated technology and software is opening the door to new challengers.
“Tesla has a lead of three to four years in areas like software and electronics. There is a risk that the Germans can’t catch up,” UBS analyst Patrick Hummel said.
Germany’s Auto Motor und Sport car magazine, normally quick to champion German manufacturers, this week ran a cover questioning BMW’s future.
“Production expertise is important, but if you want to avoid ending up being a hardware provider for Google or Apple, you need to have the ability to move up the food chain into data and software,” a former BMW board member said.