The week in renminbi: PBoC props up RMB with old rule, regulator greenlights new CGB futures, FSDC sets the tone before leadership summer meeting

China’s central bank brings back reserve requirement for FX forwards to support the RMB, the securities watchdog welcomes the launch of two year government bond futures, and a top financial regulatory body says it wants more support for the real economy before China’s leaders meet in Beidaihe.

  • By Noah Sin
  • 06 Aug 2018
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  • Starting on Monday morning, financial institutions need to set aside 20% of their investment when buying FX forwards, the People’s Bank of China said in a statement on August 3, less than a year after it scrapped the requirement.
    In a Q&A published on the same day, the central bank attributed the move to volatility in the FX markets and trade tensions, saying the requirement is now necessary to keep risk in the financial system under control and to ensure the stable operation of financial institutions in China. The PBoC added that the rule will only apply to financial institutions, noting that corporations will not be affected.
    The requirement was introduced in September 2015 to decelerate the RMB’s depreciation at the time, Tommy Xie, head of Greater China Research at OCBC Wing Hang Bank, wrote in a memo on Friday. This raised the cost for speculators, as the 20% reserves were locked in a non-interest bearing account.
    The comeback of this rule means the PBoC is once again uncomfortable with the downward pressure on the RMB, and shows that there is still a long road before RMB becomes a free float currency, he said.
    “Although China will eventually move to a clean floating currency system, the transition from [the] current managed float to [a] clean float will be gradual and prudent,” he said. “China will not hesitate to intervene [in] the market should the currency depreciation risk financial stability.”
    The PBoC’s daily onshore renminbi (CNY) fixing against the dollar was set at 6.8513 this morning, weaker by 191bp from the previous session. The CNY and the offshore renminbi (CNH) were trading at 6.8248 and 6.8352, respectively, stronger by 0.54% and 0.18% from the previous close, according to Wind data. The CNY has lost 4.80% since the start of the year, and CNH is down by 4.93% in the same period.
  • The China Securities Regulatory Commission (CSRC) has permitted the launch of a futures contract for two year Chinese government bonds (CGBs), the regulator said in a statement on Friday.
    The new product, which will begin trading on August 17 on the China Financial Futures Exchange (CFFEX), will help perfect the CGB yield curve and increase government bonds’ liquidity, said the CSRC. The CSRC greenlight came after CFFEX proposed to launch the futures contract in July.
  • Officials must make sure that the impact of monetary policy adjustments is felt in the real economy, the Financial Stability and Development Committee (FSDC) said on Friday, in its second meeting since its launch in November 2017, according to an August 3 statement by the State Council.
    The FSDC said it will strike a balance between growth and controlling risk, deepening financial reform at the same time as it encourages financial institutions to support the real economy, especially small and micro enterprises. This was the first FSDC meeting chaired by Liu He, vice premier, who assumed his post at the National People’s Congress in March.
    Separately, the Beidaihe meeting, an annual summer forum for China’s top leaders to discuss policy, is due start soon. State media reported on August 4 that Hu Chunhua, the vice premier, and Chen Xi, a politburo member, have arrived in the Beidaihe district in the Hebei province, and met with experts from various disciplines, who are gathering in the district at the invitation of the government.
  • China is planning to hit $60bn of US goods with tariffs, with rates ranging from 5% to 25%, the country’s Ministry of Finance said in an August 3 statement. This is a response to the US’ threats to hike its tariffs on $200bn of Chinese goods from 10% to 25% on August 2, said the statement.
  • The year-to-date trading volume for Hong Kong Exchanges and Clearing’s CNH futures contract hit one million contracts on Friday for the first time, compared with 732,000 contracts for the whole of 2017, according to figures provided by the bourse. Meanwhile, open interest for the product stood at 30,919 contracts.
  • China Foreign Exchange Trade System (Cfets) has added two currency pairs, NZDUSD and EURGBP, on its FX trading platform, according to an August 3 statement by Cfets. This brings the number of G10 currency pairs available to 11, said Cfets.
    It has also introduced the Executive Streaming Price (ESP) for all G10 currency pairs. The function, which is set to give liquidity providers and traders more flexibility, first featured on the platform in February.

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  • By Noah Sin
  • 06 Aug 2018

GlobalRMB Panda Bonds league table

Rank Arranger Share % by Volume
1 China Merchants Securities Co 14.82
2 Industrial and Commercial Bank of China (ICBC) 12.96
3 CITIC Securities 9.30
4 Agricultural Bank of China (ABC) 8.10
5 China CITIC Bank Corp 7.20

Panda Bond Database

Pricing Date Issuer Country Size Rmb (m)
1 15-Nov-18 Sun Hung Kai Properties Hong Kong 1,200
2 12-Nov-18 Global Logistic Properties via Iowa China Offshore Holdings Hong Kong 1,500
3 12-Nov-18 Shenzhen International Holdings China 4,700
4 24-Oct-18 China Gas Holdings China 2,000
5 15-Oct-18 China Power International Development China 2,000

Offshore RMB Bond Top Bookrunners

Rank Bookrunner Share % by Volume
1 Standard Chartered Bank 31.88
2 HSBC 19.37
3 Societe Generale 3.97
4 Bank of Taiwan 3.40
4 Cathay United Bank 3.40

Latest Offshore RMB Bonds

Pricing Date Issuer Country Size Rmb (m)
1 15-Nov-18 RusHydro Russian Federation 1,500
2 13-Nov-18 Bank of China (Hong Kong) (BOCHK) China 1,000
3 19-Sep-18 Agricultural Development Bank of China (ADBC) China 1,200
4 17-Sep-18 Hitachi Capital (UK) United Kingdom 600
5 13-Sep-18 CIFI Holdings China 1,000