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GlobalRMB reported from the International Green Finance Forum in Beijing this week, where the Climate Bonds Initiative told us it is working with Hong Kong Exchange and Clearing to launch Green Bond Connect. But market participants are divided over whether such a scheme is necessary.
Also in Beijing, Chen Yulu, deputy People’s Bank of China governor, said China will push for green finance despite the US’s backtracking from the Paris Agreement, whereas Yin Yong, another deputy PBoC governor, argued that green finance is a “key pillar” of Belt and Road’s success.
Yin’s comments came shortly before several financial industry associations jointly published a series of guidelines on controlling environmental risk for Chinese overseas investments.
A UK-China joint task force on green finance has suggested that the lack of clarity on what counts as green in securitization is holding back the market’s growth.
In the ABS market, Volkswagen’s China arm sealed its second deal of the year by sticking to a similar structure to its last deal, whereas Hyundai’s joint venture made it known that it is gearing up for a Rmb3.5bn ($535.9m) deal on September 12.
The recent growth of the Chinese ABS market was driven by demand from smaller companies, not regulators or big corporates, Kristal Hou, the executive general secretary of the industry association, China Securitization Forum, said at a conference in Hong Kong on Thursday.
In the Panda bond market, Rusal returned to raise Rmb500m in a private placement on September 1, Daimler sealed a Rmb5bn deal to meet the automaker’s growing funding needs in China, and red chip Joy City debuted with a Rmb1bn bond.
Regulators:
The BRICS Business Forum concluded in Xiamen on September 5. Participant countries, including China, India and Russia, agreed in a joint declaration to collaborate to promote financial markets integration, better manage the risks of excessive cross-border capital flows and improve communications between BRICS countries’ regulators.
The cohort of world leaders also agreed to promote the development of their national fixed income markets and to establish a BRICS Local Currency Bond Fund, which would increase the level of foreign private sector participation in their respective markets, said the declaration.
FX:
The size of China’s foreign reserves stood at $3.0915tr at the end of August, up $10.8bn or 0.4% from July, according to the State Administration of Foreign Reserves.
This uptick was partly driven by the renminbi’s recent rally, MK Tang, senior China economist at Goldman Sachs, said in a September 7 note.
“Today’s reserve reading is a first suggestion from official data that the strong CNY appreciation in August reflected net inflow pressures, marking a notable reversal from the general trend of net outflows in the past two years,” he said.
The PBoC’s renminbi fix against the dollar was set at 6.5032 this morning, 237bp stronger from Thursday and the strongest since early May 2016. The NEX CNH benchmark came in at 6.5111 at 4.31pm on Thursday, firmer from 6.5354 on Wednesday.
The dollar index closed at 91.663 on Thursday, down 0.68% from Wednesday, according to Bloomberg. The Thomson Reuters CNY reference index closed at 96.48 on Thursday, up 0.24% from its previous close.
Tao Wang, economist at UBS, said that while there was no immediate danger of the renminbi reversing, its recent run may be coming to an end.
“The renminbi is close to its fair value and the desire for domestic residents to diversify into foreign assets remains strong,” Wang wrote on September 7. “On the other hand, tighter controls on capital outflows, improved domestic economy and risk outlook should help limit any depreciation pressures.”
UBS expects the CNY to end 2017 between 6.5 and 6.6 against the dollar, and weaken to about 6.7 in 2018.
RMBi:
StanChart’s RGI Index grew 3.7% month-on-month to 1,721 points in July, up from 1,659 points in June, after the bank added a new metric to measure renminbi internationalisation – foreign holdings of onshore assets.
Kelvin Lau, senior economist, Greater China, at StanChart, said the bank made the change because China has changed its strategy in internationalising the renminbi.
“Onshore market liberalisation has become China’s preferred way of promoting the renminbi internationalisation lately, as more investor inflows are needed to offset capital outflows,” he wrote on September 7. “Tracking foreign investors’ holdings via such channels should make the RGI even more representative.”
Bonds:
HSBC’s China subsidiary has obtained a type B bond underwriting licence, according to a September 1 notice by the National Association of Financial Market Institutional Investors. This means the bank can now underwrite non-financial corporate Panda bonds in the interbank bond market.
Investment:
UBS Asset Management (Shanghai), the Swiss bank’s asset management arm in China, is setting up an onshore renminbi-denominated fund to invest in bonds and stocks, according to a September 7 media report.
Clearing banks:
The central banks of Germany and Uruguay, Deutsche Bundesbank and Banco Central del Uruguay, have been approved by China Foreign Exchange Trade System as a foreign currency lending member in the onshore FX market effective September 6.