Cross-border schemes:
The Chinese and Hong Kong regulators finally confirmed that the Shenzhen-Hong Kong Stock Connect will launch on December 5, just over two years from the opening of the Shanghai arm of the link. In our lowdownwe summarize the key facts about the long-awaited scheme. In the month of November, net daily usage of the northbound channel on the Shanghai Connect averaged Rmb142m ($20m), while southbound usage was Rmb1.3bn, according to CEIC data.
On the mutual recognition of funds scheme, net purchases of Hong Kong funds in China as of October 30 hit Rmb8.48bn, up by 1% on a month earlier. Mainland funds in Hong Kong saw total net purchases fall in the same month to Rmb95.8m, down 1%.
FX:
On November 28 the People’s Bank of China (PBoC) set the dollar-renminbi fix 126bp stronger than last week’s close to 6.9042. The onshore RMB (CNY) was trading at 6.9015 at 9:50am, up by 0.25% in the session, according to Bloomberg data. The offshore RMB (CNH) meanwhile was trading 6.9271, 0.28% stronger than the last close. The moves echoed the broad weakening of the dollar index (DXY), which was down 0.42% to 101.06.
The China Foreign Exchange Trading System (CFETS) said the trade-weighted basket of currencies closed at 94.67 on November 25, up by 0.1% on a week earlier. By comparison, the Bank for International Settlements basket was up by the same amount to 96.04 and the special drawing rights basket was nearly unmoved from 95.33 to 95.29 in the week.
The PBoC’s deputy governor Yi Gang responded to the renminbi’s continued weakness against the US dollar on Sunday, saying that the renminbi’s recent movement against the greenback is still relatively small compared with other currencies. Yi explained that the renminbi’s volatility against the dollar is mainly because of Donald Trump’s victory in the US presidential elections, heightened interest rate expectations and Brexit.
All of the events have surprised global markets, leading to capital inflows into the US and causing the greenback to strengthen. In October, the renminbi depreciated 3.5% against the dollar, whereas other emerging market currencies such as the Malaysian ringgit, the Korean won and the Mexican peso have gone down by 7.2%, 6.5% and 6.1%, Yi noted.
Capital flight:
Chinese media reported that the PBoC's Shanghai headquarters is planning to strengthen its grip on restricting capital outflows. The focus is on how Chinese corporates are circumventing the existing capital controls by channelling money into their Shanghai free trade accounts. In an internal meeting held by the PBoC with the banking industry, the central bank has asked its lenders to step up their due diligence and make sure funds channelled into FT accounts are only used for activities that support the real economy.
The overall trend has resulted in a nationwide deficit of Rmb1.8tr, according to OCBC data. The flows have not fed into CNH deposits, which have actually been falling through the year.
“This clearly shows that cross-border RMB payments have been used as an avenue to purchase dollar in the offshore market to bypass the tight regulation in the onshore market,” Tommy Xie, economist, OCBC, wrote on November 28. “This created tremendous pressure for RMB in the offshore market. With the increasing influence of CNH on CNY, the persistent weakness of CNH has weighed down the sentiment in the onshore market.”
Xie noted that any drastic clampdown will ultimately hurt the RMB’s global status.
“The latest possible move to tighten cross-border RMB payments signals that China may further tighten its capital control, in our view, but at the expense of RMB internationalisation. Between RMB internationalisation and financial stability, it seems that the latter is more important at the current stage.”
Panda bonds news:
China Everbright raised Rmb4bn from its second Panda bond outing this year with a dual-tranche offering split evenly between a 3.22% 2022 and a 3.37% 2023. The pricing of the bonds was finalised by lead underwriter Everbright Securities on November 23 although the eventual split in terms of the size was only confirmed a day later. China Everbright was originally targeting a Rmb3bn offering, which came with an Rmb1bn over-allotment option. The issuance was drawn down from the company’s Rmb12.8bn Panda bond programme.
The week ahead:
Péter Szijjártó, minister of foreign affairs and trade for Hungary will visit China on November 30 to meet with China counterpart Wang Yi. The two will participate in the first bilateral working group on the Belt and Road Initiative, the ministry said in a statement.