FX:
The People’s Bank of China’s renminbi fix against the dollar was set at 6.7964 this morning, 50bp weaker from Friday. In the spot market, the CNY was trading at 6.8023 as of 11.05am, with the CNH at 6.8015, respectively up 0.05% and 0.04% from their previous closes, according to Bloomberg data.
The dollar index was trading at 96.002 as of 10.55am, down 0.01% from the previous close, according to Bloomberg. The Thomson Reuters CNY reference index closed at 94.51 on Sunday, down 0.03% from its previous close.
Regulators:
Pan Gongsheng, head of Safe, said China will not devalue the renminbi. Writing in the state-owned Qiushi magazine, Pan argued that keeping a stable renminbi is good for China and the international community, and helps to avoid competitive devaluation among major currencies.
“What must be emphasised is that China does not wish to increase our competitiveness through currency depreciation,” wrote Pan in the July 2 article. “We do not wish to do this, nor do we have the need for it.”
Pan added that China’s FX reserves are in good health.
“There is not an internationally recognised standard as to how how much FX reserves a country should hold,” wrote Pan. “In terms of China, whatever standards we apply, our reserves are very sufficient, and can fulfil the economic and financial development demands of our country.”
The size of China’s FX reserves stood at $3.056tr by the end of May, according to a Safe spokesperson on July 7.
Swaps:
The PBoC renewed its bilateral currency swap agreement with the Bank of Mongolia on July 6. Effective for three years, the agreement will maintain the size of the swap line at Rmb15bn ($2.2bn) and can be extended upon consent by both parties. China has over 30 active swap line agreements in place worth about Rmb3.1tr, according to GlobalRMB data.
Bonds:
Norman Chan, chief executive of the Hong Kong Monetary Authority (HKMA), said that investors should focus on the long-term impact of Bond Connect rather than the size of capital inflows the bond link will bring to China’s fixed income market in the short run.
“Some may wonder how much capital will be attracted via Bond Connect,” Chan wrote in a blog article on HKMA’s website on July 6. “No doubt many will hope funds will flood in, but like any newly constructed bridges or roads, there is always a process for observation, familiarisation and adaptation during the initial stage.”
ETFs:
Blackrock has added an RMB trading counter to its iShares FTSE A50 China Index ETF to allow investors to trade the fund in renminbi, the underlying currency of the benchmark index, the asset manager said on July 10. BlackRock also announced that the ETF, which tracks 50 stocks on the Shanghai and Shenzhen exchanges, now has over 70% in physical Chinese A-shares.
“This product enhancement develops our China ETF offering,” said Susan Chan, head of iShares and index investing, Asia Pacific, at BlackRock. “Transitioning the iShares A50 fund to physical makes it more efficient, more competitive and ultimately reduces costs for investors. The addition of an RMB trading counter enhances the functionality of the fund for investors.”
Belt and Road:
China and Japan have agreed to co-operate within the framework of OBOR, according to the Chinese Ministry of Foreign Affairs on July 8. Meeting with Japanese prime minister Shinzo Abe in Hamburg, Chinese president Xi Jinping said China welcomes Japan’s participations in the realms of culture, media and education within OBOR. Abe added that China and Japan, as the second and third largest economies of the world, should also deepen co-operation in finance and trade within the OBOR framework.
OBOR will accelerate RMB internationalisation, said Vincent Lee, executive director at HKMA. Speaking at a panel discussion on July 7,Lee said that a greater volume of trade between China OBOR countries will not only spread the use of the renminbi as a trade currency but as a reserves currency internationally as well.
“As China continues to build closer economic ties with Belt and Road countries, the case for transactions in renminbi will be even stronger,” said Lee. “I expect more Belt and Road countries' central banks will be willing to hold more renminbi.”
Lee added that the HKMA’s Infrastructure Financing Facilitation Office is planning to attract more private capital to invest in infrastructure by setting up an Equity Club, to facilitate communication and co-investments among private investors for infrastructure projects.
Hubs:
Hong Kong’s renminbi deposits fell to Rmb524.8bn in May, down 0.61% from April, according to CEIC data. Meanwhile, the city’s renminbi cross-border trade settlement stood at Rmb287.19bn in May, up 7.06% from April.
The USDCNH futures on Taiwan’s Futures Exchange recorded a trading volume of 6,571 contracts in June, which marks a monthly rise of 14%, according to CEIC data.
Our most recent stories:
On July 10, the Hong Kong Exchange (HKEX) launched the first RMB-denominated gold futures contracts on the exchange, and a dollar gold future contract to be traded on its subsidiary, London Metal Exchange, GlobalRMB reported from the launch ceremony.
Bond Connect launched on July 3, granting foreign investors unfettered access to onshore renminbi bonds for the first time. Bank of China Hong Kong Asset Management (BOCHK AM) and HSBC kicked off trading on the first day. Analysts said the smooth launch has increased China’s chances of full inclusion by global index providers later this year.
The PBoC’s deputy governor reassured foreign investors using CIBM Direct they are welcome to use Bond Connect, GlobalRMB reported from the launch ceremony.
Foreign credit agencies are no longer obliged to operate with a local partner in China, the PBoC confirmed on July 3. But experts warned of economic risk if the ratings market opens too quickly.
While Bond Connect has opened the onshore market to foreign investors wider than ever before, the lack of good corporate governance and transparency remains a concern for foreign investors, our sister publication, GlobalCapital Asia, argued.
In other news, red chip real estate issuer Jinmao is returning to the Panda market to raise Rmb2.5bn on July 7. Sources told GlobalRMB the issuer is seeking a snap deal to exploit relatively calm onshore yields.
On July 3, the PBoC granted Hong Kong its first batch of RQFII quotas since 2013, bringing the city’s total of RQFII quotas to Rmb500bn. Analysts said the move will allow Hong Kong-based A-share funds to expand their exchange traded funds to capture inflows from MSCI’s A-share inclusion.