The week in renminbi: China and US talk trade, CSRC revokes licences of local securities house, HK tension intensifies
In this round-up, top negotiators from China and the US held a phone call on Saturday, the China Securities Regulatory Commission (CSRC) accused CEFC Shanghai Securities Co of illegal activity and the Hong Kong police stormed the city’s Polytechnic University after a tense weekend.
China’s vice premier Liu He held a phone discussion with US treasury secretary Steven Mnuchin and trade representative Robert Lighthizer on Saturday, state media Xinhua reported on Sunday. The report was consequently republished on the Chinese government’s website.
“The two sides had constructive discussions regarding their core concerns on the phase one deal and will continue to keep close contact with each other,” said the article.
Larry Kudlow, US president Donald Trump’s economic adviser, told reporters last Friday that the phase one trade deal could be signed by ministers rather than the two heads of state.
“You know, the two leaders may be able to put together a signing ceremony,” he said. “Both leaders have said from time to time their minsters could do it.”
The CSRC revoked all licences of CEFC Shanghai Securities, according to a Friday statement put out by the regulator. The CSRC accused the brokerage of three wrongdoings —allegedly extending illegal loans to its parent company, providing funding to related parties of shareholders and offering funding to shareholders in the name of managing their assets.
CEFC Shanghai Securities is a subsidiary of CEFC Shanghai International Group, which is, in turn, a subsidiary of CEFC China Energy Co. CEFC China Energy Co is controlled by tycoon Ye Jianming, who was placed under investigation last year on suspicion of alleged economic crimes.
The CSRC has appointed Grandall Law Firm (Beijing) to conduct administrative liquidation and Guotai Junan Securities to take over the fallen securities house’s business. The CSRC will supervise the liquidation work by sending an on-site working group.
Clashes between the Hong Kong police and protesters intensified over the weekend, with the police storming the Hong Kong Polytechnic University in the early hours of Monday after an all-night standoff with protesters.
Schools in Hong Kong were suspended on Monday.
The People’s Bank of China injected Rmb200bn ($28.5bn) into the interbank market last Friday through a medium-lending facility (MLF) operation. The interest rate for the one year tenor was unchanged from the last time at 3.25%.
“We view [Friday’s] MLF injection as a signal that there will likely be no required reserve ratio cuts before spring 2020,” Ting Lu, chief China economist at Nomura, wrote in a note. “We expect the PBoC to roll over all incoming maturing MLF and targeted MLF (TMLF), and provide additional liquidity via additional MLF, TMLF and pledged supplementary lending to fund Beijing’s stimulus package and local governments’ issuance of special bonds.”
The Shanghai-Hong Kong Stock Connect, a mutual market access scheme connecting Hong Kong with the China A-shares listed on the Shanghai Stock Exchange, celebrated its fifth anniversary on Sunday. The Shenzhen-Hong Kong Stock Connect was launched two years after the Shanghai-Hong Kong link.
Since their launch, and by the end of October, the total cumulative Northbound trading volume from the two connect schemes reached Rmb17.41tr, bringing a net capital inflow of Rmb860bn into the onshore A-share market, according to data released by the Hong Kong Exchanges and Clearing on Friday. Hong Kong and international investors held a total of Rmb1.22tr of shares listed on the Shanghai and Shenzhen exchanges by October.
Total Southbound trading turnover reached HK$8.75tr by October, bringing a net capital inflow of HK$987bn into the Hong Kong market. Mainland investors held HK$999.5bn of shares listed in Hong Kong.
Allianz, a German insurer, has received permission from the China Banking and Insurance Regulatory Commission to start the operation of Shanghai-based Allianz (China) Insurance Holding Co. Allianz (China) will be the first wholly foreign-owned insurance company in the Mainland.
The PBoC released its third quarter monetary policy report on Saturday. The central bank took a less dovish stance compared with the second quarter report. Growth headwinds are increasing and the global environment remains complicated and uncertain, the report pointed out.
“The report increases our conviction in the view that, facing the dilemma of a worsening growth slowdown amid a rapid rise in CPI inflation, worsening growth prospects will likely push Beijing to do more to support growth,” Ting Lu from Nomura wrote in a Monday note. “Amid concerns over rising CPI inflation expectations, we continue to believe Beijing will prefer low-profile and targeted easing measures in the near term.”