The week in renminbi: PBoC cuts RRR for banks, Shanghai-London Stock Connect further delayed, premier Li pays big banks a visit

In this round-up, People’s Bank of China (PBoC) cut the reserve requirement ratio (RRR) by 100bp, Shanghai-London Stock Connect likely postponed to late January, and Li Keqiang encourages big commercial banks to support the private sector.

  • By Rebecca Feng
  • 07 Jan 2019
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The PBoC lowered the RRR for all banks by 100bp on Friday afternoon after markets closed. The cut will be implemented in two parts, with a 50bp cut coming into force on January 15 and the other 50bp on January 25. The gross amount of liquidity released by the cut will be Rmb1.5tr.

“Although it did not come in entirely as a surprise, the latest ‘broad-based’ RRR cut has sent a clearer and stronger signal that policymakers are stepping up efforts to bolster the flagging economy and ramp up lending, particularly for small business,” Kevin Liu, an equity strategist at China International Capital Corporation, wrote in a January 7 note.

The central bank’s official website mentioned a list of reasons for the cut, including preparing for the yearly spike in cash withdrawals during Chinese New Year holidays and lowering funding cost for small and micro enterprises (SMEs).

“To us, what really stands out with the 100bp cut is the early timing and no-strings-attached style of the announcements,” Wei Yao, chief China economist at Société Générale, wrote in a Saturday note. “It shows a strong sense of urgency – but not panic – from policymakers.”

With PBoC’s decision not to roll over any medium-term lending facilities (MLFs) due in the first quarter, the net liquidity injection from the cut will be Rmb800bn, Wei estimated.

“This RRR cut may well turn out to be liquidity-neutral eventually (i.e. no decline in interbank rates), but it is in any case easing,” Wei wrote. She further argued that since cutting the RRR is more helpful in lowering banks’ funding cost than introducing MLFs, last week’s RRR cut can be a better incentive for banks to purchase bonds and offer loans.

The cut will also alleviate banks’ liquidity pressure due to potential early issuances of local government bonds this year, state media reported on Saturday.

“The current universal RRR cut has sent a much clearer signal that China is able to run full steam to stimulate the economy if needed,” Tommy Xie, Greater China researcher at OCBC, wrote in a Monday note. He expected China to cut the RRR by at least another 150bp in 2019.

The Shanghai Composite Index opened 0.55% higher on Monday from Friday’s close while the Shenzhen Component Index also edged up 0.67% higher, Wind data shows.

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The launch of Shanghai-London Stock Connect will be postponed to sometime in the second half of the month at the earliest, local media sources reported on January 3.

A potential concern of the regulators is the uncertainty around the impending Brexit, according to the reports. The details of how the UK leaves the European Union will only be clearer later this month, after the British parliament votes on the deal in the week of January 14.

The State Administration of Foreign Exchange has finished the technical preparation work for the new trading link but is still selecting the first batch of brokers and cross-border GDR conversion institutions. Three UK financial institutions – Barclays, China International Capital Corporation (UK), and most recently, Haitong International (UK), have been approved as cross-border GDR conversion institutions.

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Premier Li Keqiang visited Bank of China, Industrial and Commercial Bank of China, and China Construction Bank, as well as the China Banking and Insurance Regulatory Commission (CBIRC) on Friday.

He encouraged the three state-owned commercial banks to support SME financing through developing inclusive financing products. Li called on the CBIRC for more policy support.

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The Shenzhen Stock Exchange (SZSE) published rules regarding trading suspension and resumption following the more general guidance by the China Securities Regulatory Commission issued in November last year. The new rules took effect on December 28.

The new set of rules narrowed down the list of approved reasons for trading suspension, shortened the trading suspension terms, specified disclosure requirements, and established a suspension notification system.

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Total trading volume through the Bond Connect scheme reached Rmb71.3bn in December with an average daily turnover of Rmb3.57bn, according to official data.

In December, net purchase of Chinese bonds by global investors reached Rmb14bn. Interest in trading local government bonds and asset backed securities also picked up, reaching a combined volume of Rmb3.4bn.

A total of 19 new issues with a value of Rmb76.3bn were marketed via Bond Connect in December. Among those, asset backed securities took up Rmb35.7bn. In November, 38 new issues of Rmb204.5bn were issued through the scheme and Rmb46bn of them were asset backed securities.

In 2018, Bond Connect has gathered 503 global institutional investors. To date, total bond issues through the scheme amounted to Rmb4.1tn.

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The Caixin China General Services Business Activity Index rose to 53.9 in December from 53.8 in November. A reading above the neutral 50 level indicates expansion.

The Caixin services PMI rose, while the services PMI index released by the National Bureau of Statistics fell, Maggie Wei, China economist at Goldman Sachs, noted in a Friday report.

“Having said that, the changes in both services PMIs in December were very small (0.1pp each), so in general the services PMIs suggest growth momentum was broadly stable in the services sector in December,” she added.

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The State Administration of Foreign Exchange hosted a meeting on January 3, according to a statement released the next day.

The meeting discussed plans to improve the Qualified Foreign Institutional Investor (QFII) scheme, further implement the negative list approach for foreign investors, and maintain a “macro prudential and micro supervision” approach in foreign exchange policies.


  • By Rebecca Feng
  • 07 Jan 2019

GlobalRMB Panda Bonds league table

Rank Arranger Share % by Volume
1 China Merchants Securities Co 14.44
2 Industrial and Commercial Bank of China (ICBC) 11.65
3 Bank of China (BOC) 10.33
4 CITIC Securities 8.41
5 Agricultural Bank of China (ABC) 7.17

Panda Bond Database

Pricing Date Issuer Country Size Rmb (m)
1 17-Jan-19 Everbright Water China 700
2 10-Jan-19 Beijing Enterprises Water Group China 2,000
3 18-Dec-18 Bank of China Group Investment China 2,000
4 17-Dec-18 Hungary Hungary 2,000
5 06-Dec-18 China Gas Holdings China 1,300

Offshore RMB Bond Top Bookrunners

Rank Bookrunner Share % by Volume
1 Standard Chartered Bank 30.97
2 HSBC 18.82
3 Societe Generale 3.85
4 Bank of China (BOC) 3.68
5 Bank of Taiwan 3.30

Latest Offshore RMB Bonds

Pricing Date Issuer Country Size Rmb (m)
1 03-Dec-18 Huzhou Communications Investment Group China 500
2 22-Nov-18 Bank of China Tokyo Branch (BOC Tokyo) China 800
3 15-Nov-18 RusHydro Russian Federation 1,500
4 13-Nov-18 Bank of China (Hong Kong) (BOCHK) China 1,000
5 19-Sep-18 Agricultural Development Bank of China (ADBC) China 1,200