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RMB round-up: cross-border RMB trade collapses in 2016, China FX turnover remains dollar-centric, new China ETF launches in London

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By Paolo Danese
13 Jan 2017

In this round-up, RMB-denominated cross-border trade settlement suffers a big setback in 2016, turnover in the Chinese interbank foreign exchange (FX) markets revolves almost entirely around dollar trades, and GF International launches a China A-shares fund on the London Stock Exchange. Plus a recap of our coverage.

This week:

  • Experts discuss the outlook for RMB internationalisation in 2017. Part I is published here and stay tuned for Part II here.
  • Capital outflows are as big a headache for Chinese regulators as ever, argues asset manager Vanguard.
  • And, in a comment piece, GlobalRMB argues that unpopular capital controls remain a necessary evil on China's road to reform.
  • The Hong Kong Exchange is betting on the increasing need for CNH liquidity with its product development strategy, according to a recent report.

Data corner:

  • Hong Kong offshore RMB deposits took another dip in November 2016, falling 5.2% to Rmb627.6bn ($91.6bn). Deposits have fallen 26.3% since the end of 2015, according to CEIC data. Clearing of RMB transactions in Hong Kong also ended the year on a sour note, down 17.5% in the month to Rmb15.4tr. The drop in the year as a whole was slightly milder at just below 10% to Rmb201tr.
  • RMB-denominated trade settlement registered in Hong Kong saw a sharp hike in the same month, rising 26.2% to Rmb390.6bn on the previous month.
  • People's Bank of China meanwhile released its own data for cross-border trade settlement in RMB, noting that in December volumes fell again, down by 22.8% to Rmb372.6bn on a monthly basis. The total for the year is Rmb5.2tr against Rmb7.2tr, a sharp 38% drop.
  • In Macau, the local RMB deposits pool contracted by 13.2% in November to Rmb40.1bn, the lowest level since October 2012, according to GlobalRMB data.

FX:

  • Turnover data for the onshore foreign exchange markets continue to show the dollar's dominance. In December, overall turnover across pairs surged again as capital outflows pressure intensified and regulators scrambled to impose new capital control measures. Total turnover was $758.7bn, beating the previous high of $679bn set in August 2015 when People's Bank of China de-pegged the RMB from the dollar.
  • In terms of the specific pairs, the USDCNY spot activity retained a 97.5% share of the market with $739.8bn, with the remainder split across all other currencies. The Euro retained second spot with $7.7nb and the yen was in third position with $4.3bn.
  • The Singapore Exchange said on January 6 that the volume for USDCNH Futures in the month of December was 68,792 contracts, down 30% month-on-month but up 33% year-on-year.
  • The RMB stabilised in both onshore and offshore markets, with the Thomson Reuters CNY index closing at 94.91 on January 13, down 0.3% in the session and by the same amount in the week so far.

Investment:

  • GF International, the European subsidiary of Chinese firm GF Fund Management, launched its first exchange traded fund on the London Stock Exchange on January 12. The dollar-denominated ETF was incorporated in Luxembourg and is the first to track the FTSE Global China A Inclusion Index Series. The product, called GF International-FTSE China A UCITS ETF, uses the FTSE index which already includes China A-shares of large and mid-cap companies in the Mainland.
    Euroclear Bank which offers settlement services for the ETF, said in a statement that it offers GF International the capability to denominate, clear and settle future ETFs directly in RMB.
    The scheme utilises GF International's RMB qualified foreign institutional investor (RQFII) quota to access the Chinese equity market.
  • According to Bloomberg data, just over 20,000 shares were traded on the first day and the ETF closed at a price $54.63.

Indices:

  • Citic Bank International Cross-border Banking Demand Index Report for the first quarter of 2017 found that demand for related services is softening slightly as a result of RMB depreciation. The index was down from 56.8 to 56.4, with demand from corporates and individuals dropping in the past quarter. For corporates, the bank found that demand for trade finance and currency transactions services had increased the most, while cash management and asset management services had dropped the most.
    “The softening of 1Q2017 corporate demand for cross-border banking services is attributable to factors such as accelerating RMB devaluation, mainland China’s sufficient liquidity, market uncertainties as a result of Donald Trump’s US President Election win, and the central government’s tightening control over capital outflows,” the report noted.
  • The survey covers 500 companies across 15 cities in the Pearl River Delta, Yangtze River Delta, Bohai and Central & Western regions of China.

Regulators:

  • On January 6, the ministry of commerce published a yearly review and outlook for investment policies, noting the government is preparing to move forward with the free trade zone agenda.
    "Efforts will be made to carry out and implement the decision by the State Council on the free trade pilot areas of Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan and Shanxi, and to get together with the relevant departments, the seven provinces, and the municipal people’s governments to carry out the follow-up implementation work," the ministry stated in the document. 
    Between January and October 2016, the free trade pilot areas of Shanghai, Guangdong, Tianjin and Fujian saw the establishment of 117,900 enterprises, MofCom noted. Out of the total, 110,200 were domestic enterprises, with a registered capital of Rmb3.8tr, and 7,729 were foreign-invested enterprises, attracting foreign investments worth Rmb549.2bn.
By Paolo Danese
13 Jan 2017