Key developments:
Foreign companies could list their subsidiaries based in the Shanghai free trade zone (FTZ) as A-shares within a year’s time, as the FTZ leads the way to open up China’s equity market.
Experts are upbeat about MSCI’s planned inclusion of A-shares in its benchmark index in June, after three failed attempts in previous years.
Renminbi internationalisation is back on the agenda after People’s Bank of China (PBoC) signalled actions this week, but little progress is expected ahead of the 19th Congress in the autumn.
Russia’s central bank told GlobalRMB that technical preparations are complete for Russia to issue its first renminbi bond in Moscow. Meanwhile, Moscow Exchange ( Moex ) and Dalian Commodity Exchange agreed to improve information sharing and increase the number of managerial visits on March 28.
Hong Kong Stock Exchange (HKEX)’s CEO, Charles Li, revealed that the bourse will introduce renminbi denominated gold futures in June. HKEX will also launch five-year Chinese Treasury bond futures on April 10, which will be the first listed derivatives on Chinese domestic bonds.
FX:
PBoC’s renminbi fix against the dollar was set at 6.8993 this morning, up 104bp from yesterday. In the spot market, CNY was trading at 6.8972 as of 1:10pm , with the CNH at 6.8870, down 0.10% and 0.05% from previous close respectively, according to Wind data.
The dollar index was trading at 100.58 at noon, up 0.15% from previous close, according to Bloomberg data. The Thomson Reuters CNY reference index closed at 94.16 on Thursday, up 0.1% from the previous close.
Renminbi’s share of international payments in February went up to 1.84% from 1.68%, and remained as the sixth most active currency for international payments by value, according figures released by SWIFT data on March 30. The data also shows that Hong Kong settled 75.93%% of all global renminbi payments in February, followed by the UK with 5.88% and Singapore with 4.08%.
The Institute of International Finance said in March 30 report that China saw net capital inflows of $27.5bn in February 2017, the first monthly inflows since March 2014. Meanwhile, an analysis by French lender Natixis said China experienced $98bn of outflows in Q1 2017, compared to $202bn in the last quarter of 2016, according to a March 29 report.
That achievement was also a result of capital controls, which are at their tightest ever, according to Sean Taylor, chief investment officer for Asia Pacific at Deutsche Asset Management. Speaking at a press briefing in Hong Kong on Thursday, Taylor argued that the tight grip is inevitable as China undergoes structural reform, and that the renminbi will remain stable over the next 12 months.
“We will have two years of very tight control in China as reforms are happening,” said Taylor. “I expect that headline news will get worse and more defaults, and that is good because we need differentiation in the market. The Chinese government will only let that happen if they are confident in the economy.”
Hubs:
Bank of England said in its quarterly release on RMB business in the UK that RMB deposits totalled the equivalent of £6.8bn as of end-2016, down 21% from the third quarter. Total RMB-denominated loans were £4.9bn, down 53%, while trading in the FX spot and derivatives markets totalled £56.3bn, up by 9.5%.
Bonds:
RMB-denominated bonds seem to be gathering steam among SSAs. First came Export-Import Bank of India, which told local media on March 28 that it was eyeing Taiwan’s Formosa bond market for an issuance, while Panda bonds remained complex due to potential issues around repatriation of the proceeds.
In a separate report on March 29, the Philippines minister of finance told media that the country plans to sell a Panda bond by end-2017.
FTZ:
On March 29, authorities in Liaoning published a series of policies to open up the FTZ, which will allow financial leasing companies to set up renminbi accounts overseas, and permit multinational companies to set up cross-border renminbi cash pools by July 2017.
New reforms are set to be unveiled for the Shanghai FTZ as well, according to local media report published on March 27. No specific initiatives were mentioned, but they are likely to target facilitation of trade and investment in the first FTZ.
Settlement:
Xinjiang has seen a 44-fold rise in renminbi cross-border settlement since it launched a scheme in 2010, amounting to Rmb220bn of transactions, according to Xinhua.
Trade:
US President Donald Trump expects an uneasy encounter on April 6 with the Chinese president, particularly over US’s trade deficit with China. “The meeting next week with China will be a very difficult one in that we can no longer have massive trade deficits and job losses,” Trump tweeted.
Regulators:
On March 28, Chinese regulators vowed to build better financial support structures for the manufacturing sector, by developing a multi-layer capital market and helping advanced manufacturers with IPOs. The guidelines were jointly issued by PBoC, China Banking Regulatory Commission (CBRC), China Securities Regulatory Commission (CSRC), China Insurance Regulatory Commission (CIRC) and the Ministry of Industry and Information and Technology.
Banks:
China Construction Bank said in its 2016 annual results that it had increased support to the international expansion of Chinese industrial firm and the overall Going Global strategy of Chinese companies. In terms of the development of the bank’s offshore RMB business, CCB processed RMB clearing exceeding Rmb12tr at its London branch, making the UK the its largest RMB clearing centre outside of Asia.
Bank of China Johannesburg branch signed a memorandum of understanding with South Africa's Ministry of Trade and Industry on March 27. The strategic co-operation agreement aims to strengthen economic and trade ties between China and South Africa, by attracting Chinese firms to the African nation’s special economic zones, and boosting support for projects in the country.