China policy round-up: Onshore ratings set for revamp, national team remains key for A-shares, dollar to stay reserve currency of choice

In this policy round-up, the People’s Bank of China revealed plans to fix its bond rating industry, state-owned entities remain a driving force in onshore equities performance, and Moody’s says the dollar is unlikely to be challenged as a global reserve currency any time soon.

  • By Paolo Danese
  • 14 Sep 2018
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The PBoC is prepared to revamp the onshore ratings market, according to a statement published on September 12. The central bank, jointly with the China Securities Regulatory Commission, "will co-operate with the review and registration procedures for the qualifications of bond rating agencies", the announcement noted. The authorities will also harmonise bond rating activities and standards across the exchange and interbank markets through a mutual recognition arrangement.

The initiative comes after one of the three top rating agencies onshore, Dagong, was banned from the rating business for one year for selling consulting services to the companies it was rating. Dagong convinced at least 26 domestic companies to purchase a Rmb9.7m "consulting software" in exchange for higher ratings, one local media reported.


The A-shares market performance remains largely driven by state-owned entities, Goldman Sachs said in a September 8 report. The "national team", as the group of state-owned investors assembled in the wake of the 2015 stock market crash is called, was responsible for Rmb116bn in purchases in the second quarter this year, after selling off Rmb71bn in the first quarter, wrote Kinger Lau, equity strategist at Goldman Sachs. Lau calculated that the national team seems to be holding 2.9% of the entire A-shares market capitalisation as of the end of June, with its ownership levels stable since the third quarter of 2015. The focus of the Chinese government A-shares agenda seems to be supporting China old economy names, banks and industrials, which made up 40% of the holdings.


The European Union Chamber of Commerce (EU Cham) in China said a survey of businesses which ended on September 3 found that 53.9% of respondents viewed US tariffs negatively, and 42.9% shared a negative view over the Chinese tariffs approved in reprisal. Some 17% of respondents said they were delaying further investment and expansion plans as a result of the tariffs.

“The effects of the US-China trade war on European firms in China are significant and overwhelmingly negative,” said Mats Harborn, president of the EU Cham in China. “We share the concerns of the US regarding China’s trade and investment practices, but continuing along the path of tariff escalation is extremely dangerous. It threatens to dismantle the entire global, rules-based system at a time when we should be working together to modernise it.”


The dollar will remain the key reserve currency for the foreseeable future, rating agency Moody's said in a September 12 report.

"In order to be attractive as a reserve currency, a currency needs to be exceptionally stable — the issuing country should exhibit a low risk of a financial crisis, and access to the currency should provide free and convenient conditions for trade and finance," wrote Georgina Smartt, an associate analyst, and Colin Ellis, a credit strategy analyst. "These factors are likely to restrict the momentum of emerging alternative reserve currencies."

China, which has pushed hard for the renminbi to become a competitor to the dollar as a global reserve currency, is unlikely to see much progress in the short term, the two noted, despite China's growing international trade and finance links with the rest of the world.

"[C]oncerns about financial stability in China, as well as the relatively closed capital account, limits the renminbi's momentum towards being a dominant reserve currency," they said.

Despite China's rising global status through initiatives such as the Belt and Road, the affected regions are unlikely to shift their global reserve composition numbers by much.

"[The] impact of this process on global holdings of currency reserves will be slow, given that Belt and Road partners with China tend not to hold large foreign exchange reserves or account for a large share of global trade," Moody's said. "Instead, the renminbi's status would be boosted more swiftly if major central banks — such as the European Central Bank, the Bank of Japan and the Bank of England — decided to significantly increase their renminbi holdings.”


Belt and Road investment by China continued to pick up last year, according to Chinese ministry of commerce data, local media reported on September 12. Total BRI investment was $14.4bn, or 12% of China's non-financial outward direct investment, up by 3.5% on the previous year. As for the first half of 2018, global non-financial investment by China was $57.2bn, targeting 151 countries and regions, up 18.7% over the same period in 2017. 


Government officials in Pakistan are planning to pitch Panda bonds to the national government, according to local media reports on September 14. The move would help the country repay some of the debt it has accumulated under the $60bn China-Pakistan Economic Corridor, part of China's BRI. Repaying the debt in renminbi would lower currency risks and offer an alternative source of funding to the International Monetary Fund, the article noted.


Venezuela squeezed another $5bn credit line out of China ahead of a visit to the Mainland by Nicolas Maduro, president of Venezuela, the country's finance minister told media in an interview. The credit line will help the country meet its obligation to international bondholders, which hold over $6bn of Venezuela's debt.

  • By Paolo Danese
  • 14 Sep 2018

GlobalRMB Panda Bonds league table

Rank Arranger Share % by Volume
1 Bank of China (BOC) 21.85
2 China Merchants Securities Co 14.67
3 Industrial and Commercial Bank of China (ICBC) 14.44
4 Agricultural Bank of China (ABC) 8.89
5 China Securities 7.41

Panda Bond Database

Pricing Date Issuer Country Size Rmb (m)
1 10-Jul-19 BMW Finance N.V. Germany 3,500
2 20-Jun-19 Maybank Malaysia 2,000
3 30-May-19 Portugal Portugal 2,000
4 17-May-19 Trafigura The Netherlands 540
5 16-May-19 CITIC Pacific China 1,000

Offshore RMB Bond Top Bookrunners

Rank Bookrunner Share % by Volume
1 Standard Chartered Bank 32.50
2 Credit Agricole 6.34
2 HSBC 6.34
4 Bank of China (Hong Kong) (BOCHK) 6.22
4 Bank of Communications Hong Kong Branch (BOCOM HK) 6.22

Latest Offshore RMB Bonds

Pricing Date Issuer Country Size Rmb (m)
1 16-Jul-19 CIFI Holdings China 1,600
2 22-May-19 Agricultural Development Bank of China (ADBC) China 3,000
3 16-Apr-19 ICBC Singapore Branch China 1,000
4 10-Apr-19 Bank of China Macau Branch (BOC Macau) China 4,500
5 15-Mar-19 Bank of Communications Hong Kong Branch (BOCOM HK) China 2,500