Become a Bank of Systemic Importance Means What?
There are some banks whose failure or collapse can cause significant disruptions to the financial system and the broader economy. These banks, meeting certain criteria, are labeled as “banks of systemic importance.” This year, there are 20 such banks nationwide, one more than last year.
According to the People’s Bank of China and the National Financial Regulatory Bureau, Nanjing Bank has joined this list of 20 this year. This means that they must meet stricter regulatory requirements compared to other banks, such as additional capital, leverage ratio, liquidity, and large exposure risks.
In addition, these banks must update their recovery plans annually and their resolution plans every two years. The former is a plan to quickly replenish capital and liquidity once the bank’s continuous operating capacity meets predetermined trigger conditions. The latter is an institutional plan for self-rescue funding sources and arrangements.
The 20 banks include six state-owned commercial banks, nine joint-stock commercial banks, and five city commercial banks. Joint-stock and city commercial banks are characterized by headquarters in coastal regions or by having main operations in coastal regions.
Ranked from lowest to highest systemic importance scores, they are divided into five groups: Group One includes 10 banks, such as China Everbright Bank, China Minsheng Bank, Ping An Bank, Hua Xia Bank, Ningbo Bank, Jiangsu Bank, Guangfa Bank, Shanghai Bank, Nanjing Bank, and Beijing Bank; Group Two includes three banks, such as CITIC Bank, Pudong Development Bank, and China Post Savings Bank; Group Three includes three banks, such as Bank of Communications, China Merchants Bank, and Industrial Bank; Group Four includes four banks, such as Industrial and Commercial Bank of China, Bank of China, China Construction Bank, and Agricultural Bank of China; Group Five currently has no banks.
As of the first half of 2023, the total assets of banking institutions nationwide were approximately 396.18 trillion yuan. The aforementioned 20 banks of systemic importance accounted for 260.62 trillion yuan, accounting for about 65%.
The regulatory regulations for systemic important banks in China draw on international financial practices, as determined by the Financial Stability Board and the Basel Committee on Banking Supervision for global systemic important banks. In 2018, China released the “Guiding Opinions on Improving the Regulation of Systemic Important Financial Institutions”; in 2020, it issued the “Assessment Measures for Systemic Important Banks”; the following year, it published the “Provisional Measures for Additional Supervision of Systemic Important Banks.” It was also following this additional supervision regulation that the first batch of 19 systemic important banks was announced.
The rating agency Fitch Bora commented in a research report on the similarities and differences between the two systems, saying that the capital requirements for domestic systemic important banks set by Chinese regulators are basically in line with international standards. Although the requirement for additional capital in China is slightly lower than the international level, it also requires domestic banks to provision 2.5% reserve capital compared to international peers.
Mcdonald’s Increases Franchise Fees After 30 Years
Mcdonald’s has decided to increase its franchise fee in the United States from 4% to 5% of sales revenue starting in 2024, marking the first increase in nearly 30 years. This new rule will only apply to new franchisees and not existing ones.
The management explained that although Mcdonald’s has pioneered and led the industry, it still needs to focus on long-term positioning and maintain strong brand value. Increasing the fees will help them maintain a competitive advantage.
Mcdonald’s has approximately 13,400 restaurants in the United States, 95% of which are operated by franchisees. Daily franchise fees include franchise fees, rent, annual fees for using the Mcdonald’s App, and others.
Data from early 2022 shows that out of 36,000 Mcdonald’s stores worldwide, about 70% of the buildings and 45% of the land belong to Mcdonald’s. Mcdonald’s charges franchisees based on a percentage of sales, which varies by region and can be as high as 15%.
In addition, franchisees need to bear food costs, labor costs, and more. Data from 2018 shows that the average annual income of Mcdonald’s restaurant operators in the U.S. is $2.7 million, with a net profit of $150,000, giving a net profit margin of less than 6%.
Mcdonald’s business seems to be less affected by economic fluctuations. Despite inflationary pressures, same-store sales growth in the second quarter of this year exceeded 10%. Besides the continued popularity of classic items like the Big Mac, the company’s marketing efforts have also helped the “Monster Birthday Meal” become popular on social media.
Ian Borden, CFO of Mcdonald’s, mentioned in July that excellent performance has led to a 35% increase in cash flow among franchisees over the past five years.
JJ Capital Goes Independent
JJ Capital (GGV) recently announced that it will split into two completely independent American and Asian partnership firms, with fully independent brands and domains. This process is expected to be completed by March next year.
The American partnership firm will still be called GGV and will be responsible for North America, Latin America, Israel, Europe, and India, managed by Glenn Solomon, Hans Tung, Jeff Richards, and Oren Yunger.
The Asian partnership firm will simply be called JJ Capital, headquartered in Singapore, and responsible for China, Southeast Asia, and South Asia, with managing partners Jing Hongwei and Fu Jixun. Currently, the JJ Capital WeChat official account name has removed GGV and retained “JJ Capital,” and the website domain has been changed to a pinyin-based www.jiyuancap.com, while the original ggvchina.com is no longer accessible.
The RMB fund of JJ Capital will be led by Xu Bingdong.
GGV is headquartered in Menlo Park, USA, and has been operating in China for over 18 years. It was one of the earliest dollar venture capital firms to invest in China, with well-known projects including investments in Alibaba, DiDi, Baidu, Xiaohongshu, Manbang, Xiaopeng, and Santunban.
Its split is not surprising. Smaller ventures like Lightspeed China and Redpoint Ventures previously established offices in China, sharing a brand but not profits or any other functions. In June, Sequoia announced its split into three separate entities, each operating independently with different brand names, ending the era of Sequoia as a global brand.
In July, the U.S. Congress sent investigation letters to four venture capital firms, including GGV.
Why Can’t Apple Make Baseband Chips?
The iPhone 15 series has officially launched, and according to media reporters who waited alongside scalpers at major Apple flagship stores, the market reception on the first day was not optimistic – scalpers offered to buy basic models at prices below face value, Pro models had limited or no price increases, and only the Pro Max model had a premium of several hundred yuan, but the premium was not as high as in previous years.
Apple had the opportunity to add some novelty and selling points to this year’s new phones by incorporating its own baseband chip for the first time on 3nm chips – but failed. Last week, Qualcomm announced that Apple has renewed its three-year chip supply contract, essentially indicating that Apple’s own baseband chip won’t appear in new iPhones in the short term.
To break free from dependence on Qualcomm, Cook made the decision to develop its own baseband chip back in 2018. Qualcomm charges terminal manufacturers royalties based on the value of phone sales. Apple paid over $7.2 billion in chip fees to Qualcomm last year.
In 2019, Apple acquired Intel’s mobile baseband business, including intellectual property, equipment, and about 2,200 employees, and recruited many baseband-related chip talents from Qualcomm. The determination to develop in-house was clear. But after four years, the project did not meet expectations.
Former Apple engineers told the media that Apple underestimated the difficulty of developing its own baseband chip from the beginning. At the end of last year, when the prototype version of Apple’s own baseband chip began testing, executives found that these chips lagged behind Qualcomm’s best products by three years, with unsatisfactory network speed and heat dissipation. If adopted, it would further exacerbate the already criticized signal and power consumption issues of the iPhone.
Apple has achieved great success in developing its own mobile and computer processor chips, saving costs, creating more profits, and increasing product competitiveness through performance advantages. However, not every technological breakthrough can be rapidly achieved through money and manpower. The main challenges in developing baseband chips lie in the fact that they need to be compatible with all mainstream standards from 5G down to 4G, 3G, and 2G, as well as horizontally across different operators’ network standards worldwide, particularly testing a company’s past technical and patent accumulation.
The delayed progress of the baseband project also revealed some internal management and communication issues within Apple. The team consists of different groups from the United States and overseas, lacking a cohesive leader. Some managers either lack experience in this field or hinder the spread of unfavorable information, ultimately leading to unrealistic and repeatedly delayed timelines.
Keywords:
- Banks of Systemic Importance
- McDonald’s
- GGV Capital
- Baseband Chip
- Apple