The week in renminbi: PBoC governor meets Mnuchin, China issues US travel warning, World Bank and IMF lower China GDP expectations
In this round-up, US treasury secretary Steven Mnuchin called the talk with Chinese central bank governor Yi Gang ‘candid’ on Twitter, the Mainland warned domestic tourists and students against planning trips to the US, and both the World Bank and International Monetary Fund (IMF) lowered predictions for Chinese GDP growth thanks to trade tensions.
Mnuchin met with Yi Gang, governor of the People’s Bank of China (PBoC), at a gathering of the G20 leaders in Japan on Sunday.
“The two sides discussed global economic and financial issues as well as other topics concerning the G20 countries and China and the US,” according to a short statement issued by the central bank.
In an interview last Friday with Bloomberg, Yi conveyed two key messages. First, there is no special number for the renminbi exchange rate against the dollar, and second, that China has tremendous room for easing policies should the trade war worsen.
The US-China trade war has now stretched into the areas of education and tourism.
The Chinese Ministry of Foreign Affairs issued a travel warning for the US to Chinese citizens on June 4, citing “frequent shootings, robbery and theft” and “numerous harassment cases by US law-enforcement agencies”. The travel warning will stay in effect until the end of the year.
The travel advisory came a day after the Chinese Ministry of Education warned prospective Chinese students planning to study in the US to “conduct more rigorous risk assessments” before making a decision.
The ministry said the warning was due to the US government’s stricter restrictions on academic visas for Chinese researchers and scholars.
The World Bank lowered its forecast on China’s GDP growth for 2020 to 6.1% from the previous 6.2%.
“China’s immediate policy challenge is to manage disruptions caused by trade tensions with the United States without exacerbating domestic vulnerabilities,” the bank said in a report last week. “In the longer term, the country’s key challenge is to continue its gradual shift to more balanced growth, while reducing the financial stability risks stemming from high levels of corporate debt.”
The IMF also adjusted its estimate of China’s 2019 and 2020 GDP growth to 6.2% and 6% respectively last Wednesday, citing escalation of trade tensions.
Following Chinese president Xi Jinping's high-level state visit to Russia late last week, the two countries announced plans to elevate their strategic partnership to a “comprehensive strategic partnership of coordination in a new era”.
“China and Russia will further strengthen comprehensive strategic cooperation and deepen mutual support in problems concerning the core interests to both countries,” Geng Shuang, spokesperson at the Chinese foreign ministry, said during a press conference.
Speaking to two Russian news agencies, Xi said that Russian president Vladimir Putin is his “best and bosom friend” and he has had “closer interactions with president Putin than with any other foreign colleagues,” Chinese state media Global Times reported.
Xi was also awarded an honorary doctorate from Russia’s Saint Petersburg State University.
The Ministry of Industry and Information Technology (MIIT) awarded 5G licences to four domestic major wireless carriers – China Telecom, China Mobile, China Unicom and China Broadcast Network – last Thursday.
Entities with the 5G licences will be allowed to participate in the building, application and promotion of their own 5G networks, according to the announcement by the MIIT.
The Caixin services PMI declined to 52.7 in May from 54.5 in April. All sub-indices moderated but the decline was the highest in new export orders, which dropped 4.5 percentage point to 51.1.
In May, trading volume through the Bond Connect scheme reached Rmb158.6bn ($23bn), a 35.67% increase from April. Net purchase from global investors of Chinese bonds reached Rmb52.2bn, according to data provided by China Foreign Exchange Trade System, which was subsequently cited by the official Wechat account of National Association of Financial Market Institutional Investors.
Total outstanding bonds owned by foreign investors rose by Rmb76.6bn to a record high of Rmb1.61tr, according to the monthly data from Chinabond. Foreign ownership of government bonds increased from 8.1% to 8.2%, and its ownership in policy bank bonds increased to 2.8% from 2.5%.
China loosened its FX transaction rules for insurance firms on June 5, according to a statement by the State Administration of Foreign Exchange (Safe).
The relaxation allows insurers to exchange insurance capital in foreign currencies and proceeds from overseas listings directly into renminbi at financial institutions. Until now, the exchange required approval from the regulator. The new rules will “improve the efficiency of the insurance companies’ use of their capital,” said Safe.
In May, China’s FX reserves reached $3.1tr, a $6.1bn increase from April, according to data published by Safe on Monday.