RMB round-up: Safe asks companies to adapt to RMB volatility, CBRC’s Guo lashes out at banking outlaws, Chinese rating agency downgrades the US
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RMB round-up: Safe asks companies to adapt to RMB volatility, CBRC’s Guo lashes out at banking outlaws, Chinese rating agency downgrades the US

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China’s FX watchdog tells corporates to prepare for more volatility in the RMB exchange rate, the chief of China Banking Regulatory Commission (CBRC) criticises illegal activities in the banking sector, and a domestic Chinese credit rating agency moves US sovereign rating as a result of the recent tax cut.

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FX:

  • Chinese corporates must get used to more volatility in the RMB exchange rate, Wang Chunying, spokesperson at the State Administration of Foreign Exchange, told a January 18 press conference.

    “If enterprises do not change the way think about the RMB, if they do not hedge or only place one-way bets, they would not adapt even when faced with normal exchange rate volatility,” said Wang. “This would create irrational panic, which would, in turn, limit the scope for reform of the exchange rate mechanism.”

  • Bank of Lithuania has been approved by China Foreign Exchange Trade System as a member in the onshore FX market, effective as of January 16. The central bank can begin transactions in spot, forwards, swaps, currency swaps and options.

Regulators:

  • China’s banking watchdog will step up its effort to eliminate illegal activities within the banking sector, Guo Shuqing, chairman of CBRC, told local media on January 17.

    “Some shareholders treat banks as their own ATM machines, conduct improper transactions and tunnel benefits at will,” he said. “This has become a serious obstacle to the safety of the banking system and deepening financial reform. It must be dealt with severely in accordance with the law.”

Credit ratings:

  • Dagong Global Credit Rating has downgraded the US sovereign rating to BBB+, citing the recent tax cuts as one of the key culprits.

    “Massive tax cuts directly reduce the federal government's sources of debt repayment, therefore further weakens the base of government's debt repayment,” the Chinese rating agency said in a January 16 statement.

    It also blamed what it described as deficiencies in the US political system for the downgrade.

    “Under the political ecology which is built by the factional rivalries, factional interests are prioritised, and it is hard for the government to focus on the management of the national economy and social development,” said the rating agency.

    This puts the US sovereign rating on par with Columbia’s, while China is rated AA+ by Dagong.

Economy:

Belt and Road:

  • Citi has added a desk of 10 relationship and product managers in Singapore to beef up its China business, the bank said in a January 16 press release. It will provide services ranging from cash management, hedging to advisory services related to M&A, debt and equity offerings.

    In particular, the new desk will help Citi target Chinese businesses involved with the Belt and Road Initiative (BRI), Amol Gupte, head of ASEAN and CEO of Citi Singapore, said in the press release.

    “We see first-hand the opportunities that BRI brings to our clients across our network,” he said. “We recognise that ASEAN is of strategic importance to the success of BRI.”

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