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China market round-up: Foreign currency reserves slide, overseas institutions pour money into Mainland bonds

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By Addison Gong, Rebecca Feng
09 Apr 2020

In this round-up, China's foreign currency reserves decreased by $46bn in March, and non-Chinese institutions continued to add onshore bonds to their books.


China’s foreign currency reserves dropped to $3.061tr in March from $3.107tr in February.

The $46bn month-on-month decline is the largest drop since November 2016, Ken Cheung Kin Tai, chief Asia FX strategist at Mizuho, wrote in a Wednesday note. “All in all, capital outflow pressure from China spiked in March as foreign investors rushed to liquidate their non-[dollar] holding to acquire [dollar] funding,” he added.

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Chinese local governments issued Rmb387.5bn ($54.9bn) of bonds in March, according to the Ministry of Finance. This included Rmb233.3bn of general purpose bonds and Rmb154.2bn of special purpose bonds.

The March prints took the first quarter issuance volume by local governments to Rmb1.61tr. The deals have a tenor of 15.7 years on average, and pay an average interest of 3.38%.

By the end of March, the total outstanding local government bonds exceeded Rmb22.8tr, MoF data showed.

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There were 26 new foreign institutions in China’s interbank bond market in the first quarter of 2020, according to the People’s Bank of China (PBoC). Net buying of bonds in the interbank market by foreign institutions was nearly Rmb60bn, the central bank added.

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Qualified medium, small and micro-sized high-tech companies based in the Shanghai Free Trade Zone will be allowed to borrow up to $5m in foreign debt without regulatory approvals. A press release on the PBoC Shanghai branch’s website said the move will help meet these companies’ fundraising needs and further lower their financing costs.

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The Chinese province of Henan is planning to have around 10 local companies listed in the domestic and overseas stock exchanges in 2020.

It said it will promote locally-based financial institutions to work with Hong Kong, Luxembourg and Singapore to help companies in their offshore bond issuance, securitization deals and IPOs. In addition, Henan also said it will explore setting up Sino-foreign securities joint ventures and managers of mutual funds in the province.

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The Hong Kong Financial Services Development Council (FSDC) said the city has maintained its role as a leading offshore renminbi financial hub, despite the trade war, social events and the pandemic.

The RMB real time gross settlement system recorded an average daily turnover of Rmb1.1tr in 2019. Hong Kong’s RMB capital pool – including customer deposits and certificates of deposits – stood at Rmb658bn by the end of last year, according to the FSDC. It added that Hong Kong also accounts for nearly half of all offshore renminbi deposits, and its offshore renminbi settlement amounts to about 75% of RMB activity outside of Mainland China.

“At the FSDC, we believe that when short-term disruptions wane, there is still a lot to look forward to in 2020 and that our city will continue to remain an attractive option for those who want to trade and invest in RMB,” it said.

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Bank of China (BOC) published a white paper on the internationalisation of the renminbi on Tuesday.

The bank said that more than 80% of the onshore and offshore enterprises interviewed for the report are expecting the renminbi to be able to compete with the Japanese yen and British pound in terms of international status.

Nearly 70% of offshore enterprises are planning to increase their usage of the renminbi, BOC said. Approximately 80% of offshore enterprises will consider using renminbi as a funding currency. Some 39% and 11% of offshore companies said they will increase holdings of renminbi bonds and renminbi equities, respectively.

The white paper also shows that more than 70% of onshore enterprises surveyed would like to use the Chinese currency when making outbound investments. However, at the moment, only less than 20% of them do so.

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China is set to welcome the first perpetual bond from a rural commercial bank.

Shenzhen Rural Commercial Bank kicked off bookbuilding for a Rmb2.5bn bond on Wednesday at a price range of 4%-4.8%, with the proceeds to replenish its tier one capital. The deal is the seventh Chinese bank perp so far in 2020, according to Wind.

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Shenzhen YHLO Biotech Co, an immunoassay solutions manufacturer that has also been producing Covid-19 testing kits during the pandemic, has finished the ‘pre-listing’ tutoring to go public on the Shanghai Star market, according to a Wednesday filing with the Shenzhen branch of the CSRC. Citic Securities will be the IPO sponsor.

‘Pre-listing’ tutoring is required by the CSRC for all Chinese companies planning to go public. 

During this process, an IPO sponsor provides coaching to the company, including familiarising it with the necessary knowledge for being a listed company and improving its organisational structure. The local CSRC branches will organise a test for companies at the end of their coaching. Only after passing the test, companies and their IPO sponsors can submit listing applications to the CSRC. 

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The government of Hong Kong has unveiled a HK$137.5bn ($19.5bn) package of relief measures to help local businesses and individuals overcome the financial challenges brought by Covid-19. It is the special administrative region’s third round of relief, after an earlier HK$120bn package and a HK$30bn anti-epidemic fund, according the government’s website.

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The reduction by half in the regulatory reserves for Hong Kong banks, announced by the Hong Kong Monetary Authority (HKMA) last Friday, kicked into effect on Wednesday. According to the regulator, the move will release HK$200bn of lending capacity. But the HKMA said banks should use the money to support Covid-19-affected customers, instead of for dividend distributions, share buy-backs and bonus payments.

The HKMA also said on Thursday it will reduce the issuance size of exchange fund bills by HK$20bn, to increase the Hong Kong dollar liquidity in the interbank market. 


By Addison Gong, Rebecca Feng
09 Apr 2020