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The series of curbs on capital outflows by the Chinese authorities has soured interest by foreign corporates in the usage of RMB for cash management operations
Hong Kong RMB deposits fell even lower at the end of last year, a trend echoed across other offshore RMB hubs.
FX:
Friday saw the re-opening of the Chinese market following the Lunar New Year holidays. The CFETS fix for the USDCNY pair came in at 6.8556, down 32bp from the last fix before the break on January 26. In the spot market, the CNY was trading at 6.8671 as of 11:25am, up by 0.2%, according to Wind data. The offshore RMB (CNH) was 0.11% weaker at 6.8178. The dollar index was trading flat at 99.83.
The Hong Kong Treasury Markets Association (TMA) set the overnight CNH Hibor at 3.8% on the same day, more than double the rate of a day earlier and the highest since January 19.
As for the currency indices, CFETS noted that its RMB Index closed on January 26 at 94.22, down 0.64% from the end of December 2016.
The other two reference indices, one based on the Bank for International Settlements basket and the other on the Special Drawing Rights basket, closed the month at 95.56 and 95.35 respectively, down 0.71% and 0.16% in the month.
BAML expects China’s foreign exchange reserves to rise in January by as much as $68bn despite the pressure from capital outflows and a broader consensus for a small drop this month. This would interrupt a six-month streak of losses for Chinese FX reserves.
“Net RMB payments fell to just USD +1bn in December 2016, from USD +34bn in the previous month,” wrote Claudio Piron, emerging Asia fixed income and FX strategist, BAML. “This would mean less FX intervention would be required to slow depreciation and that the spread between CNH and CNY is no longer a useful explanatory factor to gauge capital flight.”
BAML added that recent efforts by the government to prevent CNH being used as a conduit to capital flight may be having a real impact.
Trading:
Trading in the Chinese interbank bond market dipped in January 2017 by 30% to Rmb40tr compared to a month earlier, and down 25% in January 2016.
In the Russian markets, the Moscow Exchange (Moex) saw spot turnover for the CNYRUB pair rise in December to Rb17bn ($290m), up 26%. Turnover for the year was Rb285bn, less than half the Rb697bn recorded in 2015.
In the swaps market, turnover for December 2016 was Rb38.6bn, up just 2% on a month earlier. For the year, however, total turnover was Rb491bn, a surge of over 300% on 2015.
Markets:
Hiroshima Bank and 13 other Japanese regional banks will gain access to the Chinese interbank payment system (CIPS) following the Lunar New Year holidays. The banks will get indirect access to CIPS via the account held by MUFG.
China Construction Bank (Malaysia) was granted a commercial banking licence by the Finance Minister of Malaysia with effect from January 27, Bank Negara Malaysia said in a statement on the same date. The country was established as an RMB hub in January 2015 with the appointment of Bank of China Kuala Lumpur branch as the local RMB clearing bank.
Trade and investment:
RMB-denominated cross-border trade settlement ended 2016 on a sour note, down over 26% on a monthly basis to Rmb288bn in December. The total for the year was Rmb4.5tr, down 34% on 2015.
China managed to stand tall in the face of a global reduction in foreign direct inflows last year, according to a report by the United Nations Conference on Trade and Development (UNCTAD). FDI in China ex-Hong Kong went up by 2.3% to a record $139bn in 2016, an impressive achievement given that global FDI flows slipped 13% to $1.53tr. China’s 9.1% market share of FDI inflows meant it remained third in the global rankings behind the US ($385bn) and the UK ($179bn).