This week:
Pan Gongsheng, head of the State Administration of Foreign Exchange (Safe) said in a lengthy interview with Chinese media that the recent capital controls will not mean the end of China’s liberalisation efforts.
Investors are taking a cautious view on the prospects for RMB bond investments, despite China’s best efforts to liberalise the market. On the equities side, meanwhile, MSCI holds all the cards with its decision on whether to include A-shares in its indices later this year.
The Panda pipeline is sleepy but not comatose, as SMIC files for its first Panda bond in the exchange market.
Corporates are taking a fresh approach to RMB cash management as the currency becomes increasingly volatile, writes sister publication Euromoney magazine.
FX
The PBoC dollar fix came in at 6.8456 on Friday, a sharp 173bp strengthening on the previous day. The onshore RMB (CNY) spot rate was moving in the same direction, up 0.1% to 6.8633 at 10:50am, according to Wind data. The offshore RMB (CNH) was still trading stronger at 6.8509, flat on the previous close. In the year so far, the CNY has appreciated 1.2%, while the CNH is up 1.7%.
The Thomson Reuters CNY index closed at 94.94 on February 16, nearly flat on last week’s close of 94.98. The dollar index meanwhile was trending lower, down 0.2% in the week to 100.52.
The director-general of the People’s Bank of China’s international department Zhu Jun said in an interview with China Securities Journal that the country’s sustained current account surplus will help prevent major adjustments in the renminbi. She was addressing concerns about the country’s FX reserves, which fell through the $3tr level last month for the first time in nearly six years. In addition, Zhu said recent measures introduced by Chinese regulators such as increased disclosure requirements on personal FX transaction should not be seen as an expansion of capital controls. Instead, they are merely the implementation of existing regulations.
Hubs:
Taiwan’s RMB deposits held up in January 2017, receding by 0.15% to Rmb310.7bn. Offshore banking units saw a 5.6% drop in the deposit base to Rmb33.6bn, while domestic ones saw a 0.5% uptick to Rmb277.2bn.
China’s cross-border trade settlement had another bad month, as capital controls and currency volatility continue to scare companies away from using the currency. The total trade settlement volume dropped 13.5% to Rmb322.4bn, the lowest level since February 2013.
The Ministry of Commerce’s 2016 review on Friday highlighted the progress China has made in terms of greater economic collaboration with the Arab States. These include getting various Chinese banks to launch renminbi operations, participate in local financing projects, and issue bonds domestically. And the authorities said they are confident such efforts would be further strengthened this year.
Derivatives news:
Investors will soon have a new instrument to manage their RMB exposure. The Hong Kong Stock Exchange (HKEX) will be launching a USD/CNH options on March 20 — the first currency option to be traded on the exchange. The contract size of a single option is $100,000 and the settlement price will be based on the USD/CNY (HK) spot rate published by the Hong Kong Treasury Markets Association at or around 11:30am on the expiry day. HKEX said the new product would complement its existing USD/CNH futures, which saw total trading volume rose 105% in 2016 to a record 538,594 contracts worth Rmb370bn ($54bn).