The week in renminbi: Individual investors can purchase local government debt, China and Russia tighten trade connections, Stock Connect celebrates fourth anniversary
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The week in renminbi: Individual investors can purchase local government debt, China and Russia tighten trade connections, Stock Connect celebrates fourth anniversary

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In this round-up, wealthy Chinese individual investors now have access to local government bonds, Russian and Chinese leaders in the financial industry are meeting to strengthen mutual market access, and northbound trading volume via Stock Connect reached Rmb8.77tn.

Local government debt can now be purchased by individual investors in the interbank market, according to a statement jointly issued by People’s Bank of China (PBoC), Ministry of Finance (MoF), and the China Banking and Insurance Regulatory Commission (CBIRC) on November 15.

Local government bonds have become the fourth type of investment to become traceable by individual investors in the interbank market, after treasury bonds, policy bank bonds, and China Development Bank bonds.

The statement also encourages local governments to prioritise selling bonds to investors residing inside the provinces where debts are originated over investors from elsewhere. 

However, the threshold for individual investors is high. They must earn an annual income of more than Rmb500,000 ($72,010), hold financial assets under their name of at least Rmb3m, and have more than two years of proven securities investing experience. The average national income is China is Rmb21,500 according to US Federal Reserve data.

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China and Russia have signed a document outlining development plans for the Russian Far East area from 2018 to 2024, according to a statement released by the Ministry of Commerce (MoC) on November 15.

The document highlighted a list of policies to attract foreign investment into the Far East area, including zero profit tax for the first five years of a foreign company’s operation, zero land tax, and zero property tax.

The document also named seven industries that regulators are encouraging Chinese companies to invest in – natural gas, mining, logistics, agriculture, forestry, aquaculture, and tourism.

In 2017, trade volume between China and Russia’s Far East district reached $7.8bn, a 26.7% jump from the year before, according to a Russian news agency. China imports from the district totalled $5bn, a 31.5% pick-up. Export reached $2.7bn, an 18.4% increase. China is now the biggest trading partner for the district.

Meanwhile, Moscow Exchange and Shanghai Stock Exchange are holding an investor forum this coming Wednesday and Thursday to discuss potential collaboration between the two exchanges.

The discussions will centre on building a joint financial infrastructure and creating opportunities for Chinese businesses to invest in Russia.

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Stock Connect celebrated its fourth anniversary on November 17.

Since the scheme launched, the total value of northbound trading was Rmb8.77tn, while Southbound trading reached HK$6.54tn, according to a November 16 statement by Hong Kong Exchange and Clearing (HKEX).

The accumulated net capital inflow of Stock Connect’s northbound trading was Rmb615bn, while that of Southbound trading was HK$813bn. Northbound daily trade value also broke a record high of Rmb42.8bn on November 2 this year.

So far this year, total northbound trading volume reached Rmb4.1tn, an 80.9% increase from last year’s Rmb2.3tn for the same period.

“In just four years, Stock Connect has become the undisputed platform of choice for international investors seeking access to China’s equity markets, and for Chinese investors diversifying their equity through Hong Kong,” Charles Li, chief executive of HKEX, wrote in the note.

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Bank of China (BOC) released its October Credits Investment and Financing Environment Difference Index (CIFED) on November 16. The index tracks the yield differential between offshore and onshore RMB bonds, with a positive level indicating a higher yield onshore than offshore. 

According to the statement, October’s CIFED general index is negative and keeps declining, indicating that it is increasingly expensive to raise renminbi offshore.

At the end of October, the CIFED general index stood at -91.8, a 69.2 point decrease from September. In August, the drop was 32.9 points.

“The Fed is still in the phase of raising interest rates,” BOC wrote in the analysis. “Meanwhile, PBoC has again cut reserve requirement ratio to ease the financing burden of the private sector. In general, the yields are declining and the market is volatile.”

The real estate sub-index decreased by 52.1 points to -223.2 in October, the lowest sub-index among all industries tracked.

Looking ahead, BOC expects the index to enter a phase of volatility due to a combination of grim prospect for a trade agreement between China and US, the appreciation of the dollar, and slowing economic growth in China.

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Another Chinese private sector unicorn failed to pay back its debt in cash.

Shenzhen-based Qianhai Air and Shipping Exchange, HNA Group's financing platform, will repay its debt to bondholders with coupons for flight tickets instead of cash, according to local media sources. The coupons can be used for both domestic and overseas travel and are valid for five years.

Last week, a pork producer, Chuying Agro-Pastoral Group, repaid interest payments to its debt holders with ham or pork gift packages worth Rmb271m, according to foreign media reports.

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PBOC governor Yi Gang held a meeting with senior bankers from five major state-owned banks and several shareholding banks, aiming to boost credit growth for small and medium enterprises (SMEs).

According to a PBoC statement on November 16, Yi reiterated that banks should actively take responsibility to support private enterprises and SMEs and improve their “political positioning.”

“Even though there was a lack of specific measures announced, this meeting is important as it likely means more window guidance which is often more effective than alternative loosening tools or in boosting short term money and credit growth, though not necessarily more efficient in terms of resource allocation,” Yu Song, a China economist at Beijing Gao Hua Securities, wrote in a November 16 note.

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Chinese security regulators unveiled new delisting rules on November 16.

These will force companies to delist once found to have committed public safety violations or failed to disclose information regarding products that can harm public health and public safety, according to two separate announcements by the Shanghaiand Shenzhen stock exchanges on Friday night.

The new regulations came after Changsheng Biotechnology, a vaccine maker, fabricated production and inspection records related to a rabies vaccine regularly given to infants in July, causing a nationwide outcry.

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Xi Jinping visited Papua New Guinea (PNG) on Thursday night to take part in the Asia-Pacific Economic Cooperation (APEC) meetings. The two countries agreed on a strategic partnership, according to an official statement on Friday. Xi highlighted that PNG was the first among Pacific island countries to sign a cooperation agreement on the Belt and Road (BRI) construction with China.

Xi also said he hoped the two countries could start negotiations on a free trade agreement as soon as possible.

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US vice president Mike Pence called BRI “a constricting belt or a one-way road” during his speech at the APEC CEO summit on November 17.

“And so today, let me say to all the nations across this wider region, and the world: Do not accept foreign debt that could compromise your sovereignty,” he said in his remarks. “Protect your interests. Preserve your independence.”

Commenting on Pence’s speech, Hua Chunying, a spokesperson at China's Foreign Ministry, told reporters on November 18 that the vice president’s speech was pointing fingers at others.

“Not a single developing country has been mired in debt difficulties because of its cooperation with China,” she said. “On the contrary, their cooperation with China has helped them enhance their capacity for self-driven development and improved their people's livelihood.”

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As of the end of September, China is still the largest foreign holder of US treasury bonds, according to data released on November 16 by the US Department of the Treasury. However, China’s holding has been slowly declining since March this year when it reached the highest point of $1.19tr. China now holds $1.15tr, while the second biggest holder, Japan, owns $1.03tn.

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China Fortune Securities, a wholly owned subsidiary of Shanghai Jinling, has obtained Qualified Domestic Institutional Investor (QDII) license from China Securities Regulatory Commission (CSRC) on November 17, according to a company statement. With the QDII status, the securities house can now invest and manage overseas securities.

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