Our top stories this week:
Here’s a development that has not been Trumped. The first Renminbi Qualified Institutional Investor (RQFII) licence has landed in the US with BlackRock Fund Advisors getting the blessing from the China Securities Regulatory Commission (CSRC).
Continuing with the RQFII story, but on a slightly somber note. The inbound investment scheme is set to end 2016 with the combined value of quotas awarded amounting to just half of last year’s total.
Meanwhile, the Bank for International Settlements has given the renminbi a glowing assessment. In its tri-annual survey on the state of global foreign exchange markets, BIS found that the renminbi has risen above other emerging market currencies in trading patterns across both spot and derivatives.
FX:
As widely expected, the rate hike by the US Federal Reserve on December 14 has ratcheted up the pressure on emerging market currencies including the RMB. The People’s Bank of China set the fix at a new yearly low of 6.9508 on December 16, down 219bp on a day earlier. In the spot market, the onshore RMB (CNY) was trading at 6.9478 as of 10:15am , flat on the previous close, according to Bloomberg data. The offshore RMB (CNH), meanwhile, was trading at 6.9398, down 0.1%.
In response to the greater market volatility, PBoC has likely been intervening in the CNH market to support the currency, with the result putting yet another squeeze on CNH liquidity. On December 15, the CNH overnight interbank lending rate (CNH Hibor ) shot up from 7.32% to 11.76%.
FTZ:
The third batch of free trade zones will go live in January 2017, Chinese state media reported on December 15. The article quoted an unnamed government source stating that the seven new FTZs are awaiting final approval, but that some of the areas could become FTZs at the start of the new year. The third batch is set to cover the Chongqing municipality as well as the provinces of Henan, Liaoning, Shaanxi, Sichuan and Zhejiang. The third batch will bring the total of Chinese FTZs to 11.
Hubs:
The Central Bank of Tunisia signed a co-operation agreement with PBoC on December 12, according to local media reports. The memorandum of understanding (MoU) covers the possibility of greater use of the local currencies, the RMB and the Tunisian dinar, in commercial and financial transactions between the two countries. Tunisia will also look into issuing a Panda bond in China, the report said.
The Dubai Gold and Commodities Exchange (DGCX) signed an agreement with the Hong Kong Chinese Gold and Silver Exchange Society (CGSE) on December 12 to collaborate on increasing the role of precious metal markets in emerging market economies, in particular, China and the Indian sub-continent.
Steven Chan, president of the CGSE, said the agreement falls under the scope of the Belt and Road initiative, stating that CGSE will support the initiative by working with the Dubai exchange to develop a joint precious metal product offering.
Green finance:
The BRICS New Development Bank (NDB) said on December 12 it had approved a new Rmb2bn ($288m) loan in China, which will be used by the local government to fund a green energy project, the construction of a wind power station in Fujian province. Previous phases of the same project have received an endowment worth $900,000 from the World Bank, and a Rmb300m concessional loan from the China Clean Development Mechanism Fund, NDB said in the statement.
ICBC has become the largest green bond underwriter in China, the bank said on December 13. ICBC has so far sold Rmb38.3bn in green bonds, including the Rmb30bn green bonds by China’s Industrial bank – the first green financial bond in China – and the Rmb3bn green bond by NDB – the first such deal by a multilateral development bank under the green finance rules introduced by the National Association of Financial Market Institutional Investors (NAFMII) in May 2016.
As of September 2016, China has issued green bonds worth Rmb120bn, 45% of global green bond issuance, making China the world's largest green bonds market, according to ICBC data.
Bond news:
The gap between onshore and offshore renminbi bond yields narrowed in November, according to Bank of China’s Credits Investment and Financing Environment Difference (CIFED) Index. The index closed November at minus 95.97, 29.25bp higher than the previous month. A negative value reflects that the cost of bond funding onshore is lower than offshore.
Market news:
The Bank for International Settlements announced this week that China has joined its Locational Banking Statistics (LBS) programme. Under the terms of the agreement, China will now post its domestic banking statistics on the BIS. This development is part of the broader effort of the 2016 G20 Hangzhou Summit as one of the focus from the communique is to improve data collection, analysis and transparency.
Photo of the week:
Takehiko Nakao, president, Asian Development Bank, shakes hands with Jin Liqun, president of the Asian Infrastructure Investment Bank, on December 13.
