CNH liquidity got a boost on Friday. The People’s Bank of China announced a series of policy changes to shore up the offshore pool ahead of MSCI’s inclusion of A-shares in its benchmark emerging market index, which will start on June 1.
RMB clearing banks based in Hong Kong and Macau are no longer required to keep renminbi in settlement accounts at the PBoC’s branches in neighbouring Shenzhen and Zhuhai, said the central bank. RMB clearing banks and participating banks can borrow in the onshore interbank market and participate in repo transactions .
Th e PBoC has also made it possible for international investors to convert their foreign currencies and hedge their FX exposure in the onshore market. RMB clearing banks are responsible for ensuring that the volume of these transactions are reasonable and in line with the demand for Stock Connect trading .
Th e central bank added that it will fully implement its existing bilateral local currency swap agreements with various monetary authorities to provide convenience in trade and investment and to safeguard the stability of financial markets. All of the above measures came into force on May 18 .
Th e policy will help address the increasing demand for RMB in the offshore market, Norman Chan, chief executive of the Hong Kong Monetary Authority, said in a May 18 press release.|
“As RMB internationalisation continues to progress and mutual access of capital markets between the two places further deepens, market demand for offshore RMB liquidity will increase,” he said. “We believe that the new measures will help ensure the offshore market to continue to function orderly and efficiently, and support Hong Kong's development as the global offshore RMB business hub.”
The looser CNH liquidity, as a result of the new arrangements, will drive demand for dim sum bonds, Becky Liu, head of China macro strategy at Standard Chartered, said in a May 18 memo. She added that the new policy could bring the onshore and offshore renminbi markets closer in one important aspect.
“The arrangement made it materially easier for offshore RMB participating banks to access onshore liquidity pool whenever CNH liquidity condition is tighter than onshore,” she said. “It leads to further convergence between onshore and offshore RMB liquidity conditions, and onshore interbank rates will likely to cap CNH short term rates going forward.”
Preparations are underway at the LSE for the launch of the London Shanghai Stock Connect, according to a media report.
Shanghai-listed companies worth over Rmb20bn ($3.13bn) are eligible to feature on the ‘Shanghai board’ in London in the form of depository receipts ( DRs ). These companies will not be able to issue over 15% of their share capital in the UK .
Tradin g on the London link will be in dollars, and possibly in RMB and sterling, the report has claimed. It will be subject to English law. Trading hours are set at 9am to 4.30pm UK time.
Yi Gang, governor of the PBoC, announced in April at the Boao Forum that the London Connect will launch later this year. GlobalRMB reported last November that the scheme would emerge in the form of DRs .
China and the US are withdrawing their tariff threats — for now. In a May 19 joint statement, the two governments outlined a series of measures to narrow the US trade deficit with China.
“Both sides agreed on meaningful increases in US agriculture and energy exports,” said the statement. “Both sides attach paramount importance to intellectual property protections, and agreed to strengthen cooperation.”
Increasing imports from the US will help meet demand from Chinese consumers, as well as benefitting the US economy, the statement added. It concluded the visit by Liu He, vice premier and president Xi Jinping’s special envoy, who arrived in Washington last week to continue trade talks.
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