Economic Performance - In 2025, China's GDP grew by 5.0%, reaching a total of 140 trillion yuan, meeting the initial target[10] - Fixed asset investment saw a decline of 3.8%, marking the first annual negative growth since records began[10] - Retail sales of consumer goods increased by 3.7%, with service consumption growing at 5.5%[10] 2026 Outlook - GDP growth is projected at 4.8%, with expectations of improved internal demand and a narrowing of supply-demand disparities[5] - CPI is expected to recover moderately, with the decline in the GDP deflator narrowing from -1.0% to around -0.2%[6] - Investment is anticipated to stabilize, with marginal improvements in manufacturing and a reduction in the decline of real estate investment[8] Capital Market Trends - The A-share market is expected to continue its structural bull market, led by the technology sector, with global funds increasing allocations to Chinese assets[7] - The RMB exchange rate is projected to appreciate moderately to around 6.8[7] Risks and Challenges - Insufficient internal demand and low prices are mutually reinforcing, leading to weak consumption and investment growth, which pressures corporate profits[11] - The real estate market is undergoing deep adjustments, with ongoing declines in investment and high inventory levels affecting market confidence[11] - High youth unemployment rate at 16.5% poses structural challenges to employment and income stability[11]

Investment Rating - The report does not explicitly provide an investment rating for the industry. Core Insights - The financial services industry is facing significant regulatory changes driven by geopolitical tensions, economic pressures, and the rapid evolution of technology, particularly in areas like artificial intelligence and digital assets [6][21][22]. - Regulatory bodies are under pressure to balance economic growth with the need for robust risk management and governance frameworks, leading to a trend towards regulatory simplification rather than outright deregulation [9][19]. - The fragmentation of global regulatory standards is becoming more pronounced, with different jurisdictions adopting varying approaches to regulation, particularly in the context of digital assets and sustainability [9][22][36]. Summary by Sections Global Overview - Financial markets experienced turbulence in early 2025 but stabilized later in the year, although underlying risks remain [6]. - Regulatory agencies are tasked with simplifying rules while monitoring emerging risks that could have systemic implications [6][9]. Regulatory Evolution - The adoption of artificial intelligence in financial services is accelerating, with 71% of CEOs identifying it as a primary investment focus, up from 53% in 2024 [12]. - Regulatory frameworks for digital assets are being established, with various jurisdictions developing their own guidelines, leading to a patchwork of regulations [9][36]. AI and Innovation - AI is expected to enhance the quality and inclusiveness of financial services, but it also presents challenges such as bias, opacity, and governance gaps [14][18]. - Regulatory sandboxes are being expanded to allow for the testing of AI solutions in a controlled environment, fostering innovation while managing risks [16][17]. Regional Focus: Europe and UK - The EU and UK are focusing on simplifying existing regulations rather than deregulating, with an emphasis on maintaining financial and operational resilience [22][23]. - The UK and EU are also addressing retail investment development, with the EU formulating a retail investment strategy and the UK implementing targeted support measures [9][19]. Regional Focus: US - The new US administration has issued over 200 executive orders focusing on cybersecurity, financial resilience, and digital finance leadership, indicating a shift in regulatory priorities [32][33]. - There is a trend towards customizing regulations for smaller institutions while potentially easing requirements for larger banks [34]. Regional Focus: Asia-Pacific - The Asia-Pacific region is characterized by diverse regulatory requirements, with a focus on prudential regulation, behavioral regulation, and the integration of digital assets [40][41]. - Regulatory bodies are enhancing scrutiny on cybersecurity and operational resilience, particularly for firms involved in digital asset ecosystems [42][43].

Group 1: Application Requirements Changes - Individuals with mainland resident status are no longer eligible to apply for tax subsidies[3] - The application window for the 2025 tax year is from January 1, 2026, to March 31, 2026, which is significantly earlier than previous years[6] - Applicants who obtained Hong Kong identity through talent programs but retain mainland residency are now restricted from applying for the 2025 tax year[3] Group 2: Additional Application Insights - The 2024 tax year allows for supplementary applications, but they must adhere to the new requirements[6] - Other cities in the Greater Bay Area are also updating their subsidy application requirements, potentially aligning with Shenzhen's new policies[6] - Since the introduction of the tax subsidy policy in 2019, application requirements have tightened, and verification methods have diversified[6]

Policy Framework - The "14th Five-Year Plan" emphasizes high-quality development, focusing on modern industrial systems, technological self-reliance, and green transformation[4] - Key tasks include expanding domestic demand, deepening reform and opening up, and ensuring national security[4] Technology and Industry Integration - The State-owned Assets Supervision and Administration Commission (SASAC) aims to enhance the integration of technological and industrial innovation through high-quality supply and efficient transformation[6] - Focus areas include identifying bottlenecks in industrial chains and fostering collaboration with external institutions[10] Scene Cultivation and Application - The government has outlined 22 economic and social application scenarios across five categories to accelerate scene cultivation and large-scale application[17] - Emphasis on creating high-value application scenarios and integrating major projects as testing grounds for new technologies[18] Economic Work Priorities - The 2026 economic work plan highlights eight key tasks, including innovation-driven growth and maintaining stability while pursuing progress[25] - SASAC's focus will be on high-quality development, enhancing cooperation, and fostering new productive forces[25] State-Owned Enterprise Reform - The reform aims to deepen the role of state-owned enterprises (SOEs) in driving economic growth and enhancing their core competitiveness[26] - Strategies include optimizing state capital layout and breaking down internal barriers to promote the flow of production factors[26]

Group 1: Capital Planning and Implementation - The "15th Five-Year Plan" emphasizes the need for state-owned enterprises (SOEs) to deepen reforms and enhance their core functions, aiming for high-quality development through capital planning[10] - KPMG's white paper outlines a comprehensive service system covering planning, investment, and management phases, focusing on efficient capital asset operation and strategic restructuring[28] - SOEs face challenges in aligning capital planning with national strategies and industry policies, necessitating a dual approach of "industrial operation + capital operation" to enhance competitiveness[29] Group 2: Investment and Market Analysis - KPMG provides investment market and track analysis services to help SOEs identify and prioritize investment opportunities in emerging sectors, ensuring alignment with national strategic goals[60] - The service includes a systematic evaluation of market potential, technological feasibility, and risk assessment to guide SOEs in making informed investment decisions[60] - Effective capital recovery and asset optimization strategies are crucial for enhancing asset operation efficiency and achieving value appreciation for state-owned assets[41] Group 3: Strategic Restructuring and Optimization - Strategic restructuring of regional SOEs is essential for optimizing resource allocation and enhancing core competitiveness, contributing to regional economic development[72] - KPMG offers a five-step approach to strategic restructuring, focusing on thorough research, clear positioning, and resource optimization to ensure successful integration post-restructuring[73] - The optimization of state-owned capital investment and operation companies is vital for achieving market-oriented operations and enhancing the overall effectiveness of capital management[83]

Group 1: High-Quality Development Planning - The "15th Five-Year Plan" emphasizes high-quality development as a key principle, focusing on reasonable growth and effective improvement[26] - State-owned enterprises (SOEs) are identified as the "pillar" of the national economy, requiring a comprehensive and iterative high-quality development blueprint[26] - KPMG's white paper aims to assist SOEs in creating a scientific and actionable high-quality development plan, addressing core challenges and aligning with national strategies[26] Group 2: Core Planning Elements - The planning framework includes four core elements: industrial upgrading, capital empowerment, organizational human resources, and risk compliance[13] - Each core element is designed to be flexible, allowing for tailored solutions that meet the diverse needs of SOEs[27] - KPMG's service system integrates various topics such as SOE reform, innovation ecology, sustainable development, and financial optimization[29] Group 3: Challenges and Solutions - SOEs face challenges in balancing functional roles and operational efficiency, particularly in traditional business transformation and new industry layout[28] - KPMG provides a systematic approach to capital planning, enhancing asset quality and optimizing capital allocation to support SOEs' core missions[50] - The establishment of a comprehensive risk management system is crucial for SOEs to prevent systemic risks and ensure compliance with regulations[63]

Investment Rating - The report does not explicitly provide an investment rating for the financial industry. Core Insights - The financial regulatory landscape in 2025 shows a significant increase in penalties, with a total of 1,366 fines issued, amounting to 1.56 billion yuan, indicating a heightened regulatory scrutiny [4][6]. - The report highlights a trend of increasing accountability within financial institutions, with a focus on data quality and compliance issues, as evidenced by the rise in penalties against both institutions and individuals [9][29]. - The emphasis on data governance and compliance is expected to intensify in 2026, driven by new regulatory frameworks and initiatives aimed at enhancing data security and management capabilities [31][66]. Summary by Sections Regulatory Penalties Overview - In 2025, the People's Bank of China and the Financial Regulatory Authority issued 1,366 fines totaling 1.56 billion yuan, with notable increases in the number of penalties compared to 2024 [4][6]. - The People's Bank of China saw a 121.08% increase in the number of penalized institutions, while the Financial Regulatory Authority's penalties decreased in quantity but increased in average fine amounts [17][18]. Individual Penalties - A total of 1,525 fines were issued to individuals in 2025, amounting to 89.49 million yuan, reflecting a trend of increasing accountability at all levels within financial institutions [9][11]. - The report indicates a significant rise in penalties against senior management and operational staff, emphasizing the importance of internal accountability [9][29]. Penalty Trends - The report notes that the third and fourth quarters of 2025 experienced a surge in both the number and amount of penalties, indicating sustained regulatory pressure [15][31]. - The highest individual penalty recorded was 2.66 million yuan, while the highest institutional penalty reached 10 million yuan [12][13]. Focus Areas for Penalties - The majority of penalties were related to data quality, compliance, and reporting issues, with banks and insurance companies being the most affected sectors [29][30]. - The report identifies rural commercial banks and insurance institutions as primary targets for regulatory actions, with a notable increase in penalties against non-bank payment institutions [21][24][27]. Future Regulatory Landscape - The report anticipates that 2026 will see a continued focus on data governance and compliance, driven by new regulatory initiatives aimed at enhancing data management capabilities across the financial sector [31][66]. - The implementation of the "One Table" regulatory reporting system is expected to transform data governance practices within financial institutions, promoting a culture of compliance and data quality [34][54].

Investment Rating - The report indicates a strong confidence in Hong Kong as a preferred wealth management center, reaching the highest level in three years [17][44]. Core Insights - The private wealth management (PWM) industry in Hong Kong is experiencing robust growth, with total assets under management (AUM) reaching HKD 10.4 trillion, a 15% increase year-on-year, driven by portfolio appreciation and net inflows [29][19]. - Client confidence in Hong Kong as a wealth management hub has significantly improved, with 44% of PWM companies reporting strong agreement that clients prefer Hong Kong, the highest level in three years [44][56]. - Geopolitical risks have surpassed macroeconomic factors as the primary concern for the industry, prompting clients to further diversify their investment portfolios [40][56]. - The demand for alternative investments is rising, reflecting their increasing appeal as a hedge against uncertainty, with virtual assets and commodities continuing to attract client investments [50][56]. Industry Dynamics - The PWM industry is witnessing strong growth and stable net inflows, primarily due to increasing client confidence in Hong Kong as a wealth management and business accounting center [28]. - As of December 31, 2024, the total AUM in the private banking and PWM sectors reached HKD 10.4 trillion, a 15% year-on-year increase, highlighting the city's attractiveness as a wealth creation and preservation center [29][30]. - The net inflow for the year was HKD 384 billion, a 13% increase year-on-year, attributed to client confidence in Hong Kong as a wealth management platform [32]. Market Expansion - The sentiment in the market has become more optimistic, with the number of companies expressing "very optimistic" or "moderately optimistic" views increasing from 76% in 2024 to 100% in 2025 [57]. - The Hong Kong government is actively promoting the city as an international financial center through various initiatives, including the Top Talent Pass Scheme and the new Capital Investment Entrant Scheme [60]. - The AUM share from mainland China continues to rise, currently accounting for 57% of total AUM, expected to increase to 63% in the next five years [62]. Vision 2030 - The PWM industry in Hong Kong is expected to focus on providing new value to clients and further solidifying its position as a leading global wealth management center by 2030 [90]. - Deepening partnerships between asset managers and private banks is essential for maintaining Hong Kong's competitive edge and supporting increasingly complex client needs [91]. - The ongoing development of technology is crucial for transforming client engagement and risk management, with a need for seamless, secure, and personalized digital experiences to attract new generations of clients [92].

Group 1: Regulatory Changes - The Hong Kong Stock Exchange (HKEX) has proposed amendments to the public float requirements, which will take effect on January 1, 2026[11] - Issuers must maintain a public float of at least 15% of their issued shares, or a market capitalization of at least HKD 500 million, representing at least 5% of the total issued shares[5] - New alternative thresholds allow issuers to meet public float requirements with at least 10% of issued shares and a market capitalization of at least HKD 1 billion[5] Group 2: Compliance and Reporting - Issuers with insufficient public float will be marked with a special stock identifier ("-PF") and may face delisting if they do not rectify the situation within 18 months[5] - Enhanced disclosure requirements will be imposed on issuers that have previously opted for alternative thresholds, including monthly reporting of public float values and percentages[10] - Issuers must notify the market if they switch from alternative thresholds back to initial specified thresholds[8] Group 3: Market Consultation - The HKEX conducted a consultation on optimizing IPO pricing and public market regulations, with a summary published on August 1, 2025[7] - Feedback from the market led to slight modifications in the proposed amendments to the public float requirements[7]

Group 1: Economic Outlook - 67% of multinational companies express confidence in their growth prospects in China over the next three to five years[8] - 64% of respondents have a positive outlook on China's economic growth compared to only 42% for the global economy[12] - 52% of multinational companies expect revenue growth in 2025, while 25% anticipate potential negative growth[18] Group 2: Investment Plans - 75% of multinational companies plan to maintain or increase their investments in China by 2025[40] - 94% of respondents are committed to investing in the Chinese market despite short-term economic pressures[40] - The primary reasons for additional investment include maintaining competitiveness (64%) and increasing production capacity (36%)[40] Group 3: Business Operations - 61% of multinational companies have shifted their focus from growth to profitability in the past three years[45] - 49% of companies are enhancing operational efficiency to improve profitability[51] - 83% of multinational companies have localized some aspects of their operations in China[65] Group 4: Workforce Adjustments - 45% of multinational companies have actively reduced their workforce in China to enhance efficiency[51] - Among those reducing staff, 60% have laid off 1% to 10% of their employees[54] - 29% of multinational companies reported a decrease in foreign employees in China from 2024 to 2025[58] Group 5: Digitalization and Cybersecurity - Over 90% of multinational companies plan to invest in digitalization, focusing on data analytics (52%) and IT infrastructure upgrades (46%)[89] - 58% of multinational companies are using artificial intelligence tools in their operations in China[93] - Key challenges include compliance with cybersecurity laws and ensuring IT infrastructure meets both international and Chinese standards[89]