The week in renminbi: top regulators offer market support, RMB-JPY swap line coming, China tax cuts details emerge

China’s top financial regulators coordinated statements boost stocks, Japan and China to resume currency swap agreement, and MoF announces additional details on personal tax cuts.

  • By Rebecca Feng
  • 22 Oct 2018
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All four top financial regulators in China were interviewed on Friday, and delivered similar messages of support. These messages came at a time of market volatility and the release of weak GDP data. Real GDP growth came in at 6.5% YoY, down from 6.7% in Q2, the weakest quarterly print since 2009.

The stock market responded on Monday morning as the authorities had likely hoped, with the Shanghai composite index climbing 4.17% to 2,657 points by 11:50am, according to Bloomberg data.

Vice premier Liu He told state media that the recent market slump was due to four factors. First, there are “external factors”, such as rising interest rates and the trade war. Liu specifically pointed out that in terms of the influences of trade war on the general economy, “mental impact exceeds actual impact on the market.”

Second, China’s economic structure is undergoing restructuring and reforming and therefore, volatility is unavoidable. Third, market expectations have changed and uncertainties for the future influence investors’ behaviours. Lastly, there are “technical factors”.

Liu also called for more financial support for the private sector and criticised the recent market talks about the “dominance of SOEs and the decline of private sector” as “wrong and impartial.”

Liu struck a hopeful tone.

“Any difficulties and problems China is facing now are difficulties and problems in its way forward to a better future,” he said.

Yi Gang, governor of the People’s Bank of China, was interviewed by Financial Times. He emphasised that “the current stock market valuation at a historically low level is in contrast to China’s stable and sound economic fundamentals.”

Yi added that, going forward, PBoC would perfect financial measures to make it easier for the private sectors to borrow money and maintain a “prudent and neutral” monetary policy.

Liu Shiyu, head of the China Securities Regulatory Commission, like PBoC’s Yi, stressed the importance of easing financing to the private sector. He outlined nine measures including encouraging private equity firms and local governments to buy shares and establish equity investment funds to help fund entrepreneurial endeavours.

Guo Shuqing, head of the China Banking and Insurance Regulatory Commission, also echoed Yi’s message.

“The current market volatility is unusual. It is at odds with the overall stable economic developments. As the bigger trend of moving towards a better future has not changed, the systemic financial risks at present are completely controllable.”

“The recent market volatility was mainly driven by weak sentiment arising from trade war, concerns about China’s SOE reform as well as technical issues such as the margin call of share pledged financing,” Carie Li, an economist at OCBC Wing Hang Bank, wrote in a note. “The fine-tuning of the wealth management rules is likely to put a brake on the recent decline of off-balance sheet lending activities. This may offset the weak credit expansion. Overall, it is clear now that growth tops the priority again.”

The statements from the regulators failed to boost the RMB in the foreign exchange markets, however. The onshore RMB (CNY) and offshore RMB (CNH) were both trading flat from the previous close around the 6.93 mark against the dollar.

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Japan and China have decided to reintroduce a currency swap agreement for yen and yuan with a cap of around JPY3tn (26.6tr), according to a Japanese media report on October 20.

The agreement will be finalised at a meeting this Friday between Prime Minister Shinzo Abe and President Xi Jinping in Beijing, the reports noted. The meeting was planned during a previous summit between the two leaders in May in Tokyo.

The two countries are to agree on a 10-fold increase in the swap ceiling from around $3bn in the previous Japan-China currency swap agreement, signed in 2002 and expired in 2013.

The agreement will also be a result of lobbying from Japanese businesses, the article added. With improving bilateral ties between China and Japan, trade and investment expansion between the two countries followed. With the new agreement, Japanese companies will receive the RMB provided by the Chinese central bank via Japanese banks.

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China’s Ministry of Finance (MoF) announced additional details on personal tax cuts in a statement on October 20. This cut is a part of the previously announced package to cut personal income tax.

The cuts are in the areas of education, health, housing, and elderly care. Notable ones include a Rmb12,000 deduction per year for pre-school education and curricula education (including university) on each child, an maximum of Rmb60,000 deduction per year on the treatment of a serious disease, and a Rmb24,000 deduction per household made up by two single children on the support of his or her parents and close relatives over 60 years old.

“The package is likely to form a part of a modest loosening in the on-budget fiscal policy next year” Yu Song, an economist at Beijing Gao Hua Securities, the onshore joint venture of Goldman Sachs, wrote in a note on October 22. “We expect the government to set a modestly larger deficit target for next year, perhaps back to the level for 2016 and 2017.”

The tax cuts are likely to boost household consumption modestly next year, the bank added.

“The magnitude of the adjustment was widely viewed as disappointing as there were hopes that the level would be raised further after the government sent out consultation document, as it did when the level was adjusted the last time to the Rmb3,500 level back in 2011.”


  • By Rebecca Feng
  • 22 Oct 2018

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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