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The week in renminbi: Watchdogs dovish on WMP, US cries foul over RMB ‘manipulation’, HKEX CNH options hit new high

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By Noah Sin
23 Jul 2018

Regulators water down wealth management product (WMP) rules, Donald Trump calls China a currency manipulator as his treasury secretary ramps up the pressure, and Hong Kong Exchanges and Clearing (HKEX) pushes USDCNH options trading volumes to a new high.

  • The People’s Bank of China has given asset managers more flexibility to comply with WMP rules, according to a supplementary set of guidelines published by the central bank on July 20. This follows the introduction of WMP regulations in April. The rules will be fully implemented by the end of 2020.
    The central bank came up with several measures to ease pressure on banks, such as allowing existing WMPs to continue investing as long as the chosen assets mature by 2020. The PBoC will also allow banks to issue tier-two capital bonds to offset the impact of the rules.
    As part of the same package of new rules, the China Banking and Insurance Regulatory Commission (CBIRC) and the China Securities Regulatory Commission (CSRC) specified the WMP guidelines for banks and financial institutions selling securities and futures, respectively.
    In its announcement, the CBIRC laid out, among other provisions, that public and private WMPs must be clearly defined and separated, noting that private funds should not be offered to more than 200 qualified investors. But it also lowered the minimum amount clients need to pay for publically-offered funds to Rmb10,000 ($1479) from Rmb50,000. Meanwhile, the CSRC stressed the need for more flexibility on WMP rules, to ensure a stable transition to the new regime.
    The rules are less draconian than the market previously speculated, Tommy Xie, head of Greater China research at OCBC bank, wrote in a memo on Monday.
    “Publicly-raised funds are still allowed to invest in certain non-standard assets such as trust loans and [entrusted] loans, though it will be subject to conditions such as duration matching and quota limits,” he said.
    Song Yu, chief China economist at Beijing Gao Hua Securities, also believes that regulators are softening their stance, despite sticking to the overall policy direction of shrinking shadow banking.
    “The new changes mostly represent a more flexible way to manage these products and hence a more dovish policy stance,” he wrote in a July 23 note. “While there are still constraints to maintain stability, the majority of these are self-imposed and can be at least temporarily relaxed if needed.”
    However, the next round of adjustment may not come in the form of supplementary rules, Song added. Regulators could guide market participants through verbal ‘window guidance’.
    “Non-written measures are often an important part of policy making,” he said.

  • The US is monitoring movements in the RMB exchange rate and will consider once again if the currency has been manipulated by Chinese authorities, Steven Mnuchin, the US treasury secretary, told media on Friday. This will form part of the semi-annual report on currency manipulation, the next edition of which is due in October.
    “There’s no question that the weakening of the currency creates an unfair advantage for them,” he said. “We’re going to very carefully review whether they have manipulated the currency,”
    Mnuchin’s comments came after US president Donald Trump accused China and the European Union of manipulating their currencies in a tweet on Friday.
  • CNH options on the HKEX recorded their highest ever volume last Friday, rising to 1,127 contracts, according to figures provided by the exchange. The bourse’s CNH futures also hit their sixth largest volume ever on July 20, with 16,785 contracts traded. 
  • The PBoC issued Rmb502bn loans through the medium-term lending facility (MLF) on Monday morning, amounting to a net liquidity injection of Rmb332bn after Rmb170bn of reverse repo matures today, according to local media. Last week, local media claimed that the central bank promised to lend more through MLF to commercial banks that are willing to buy corporate bonds with lower credit ratings.
  • The State Council named one of its members, Wang Yong, as the head of the newly formed Anti-Monopoly Commission, according to a July 11 statement made public last Thursday. Liu Guoqiang, assistant to the PBoC’s governor, Liang Tao, deputy chairman of the CBIRC, and Yan Qingwen, deputy chairman of the CSRC, have also been appointed committee members at the commission.

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By Noah Sin
23 Jul 2018