FX:
The first dollar fix of the week by PBoC came in at 6.8814, weaker by 159bp and the lowest since February 22. The spot markets followed suit, with onshore RMB (CNY) and offshore RMB (CNH) both down 0.1% at 10:20am to 6.8765 and 6.8603 respectively, according to Wind data.
The currency indices ended the week on a downward path. The CFETS basket stood at 93.84, down 0.4%. The Bank for International Settlements basket closed at 95.11 and the SDR basket at 95.83, down 0.4% and 0.01%, respectively. The Thomson Reuters reference CNY index was flat from a week earlier, closing at 94.85.
The onshore FX market saw a sharp slowdown in monthly turnover in January 2017, down 32% to Rmb10.5tr ($1.53tr), compared to a month earlier, according to CEIC data. It is also the lowest turnover since May 2016. The spot market turnover, which makes up around half of the total FX market trading, saw an equally sharp 38% fall in turnover to Rmb4.4tr.
CFETS updated the list of RMB FX market participants on February 24, noting the total has reached over 17,000 institutions and products. Among foreign participants, there are 34 foreign securities companies, 12 foreign RMB clearing banks, 46 foreign central banks, and 203 foreign and foreign-funded banks.
Interbank lending has been made possible for the Australian dollar and the Japanese yen on China’s interbank FX market with effect on Monday, according to CFETS. In addition, CFETS is also able to start supporting negative interest rate interbank lending trades.
Regulators:
Speaking at an event in Singapore last week, PBoC chief economist Ma Jun reiterated that the Chinese authorities are looking at new regulation that would allow foreign institutional bond investors to participate in the onshore currency derivative market to hedge currency risk.
Guo Shuqing, former governor of Shandong province, was appointed as the head of the China Banking Regulatory Commission last week, replace the former head Shang Fulin who will retire, local media reports said. Guo acted as vice-president of PBoC and was appointed head of the State Administration of Foreign Exchange (Safe) in 2001. He was also chairman of the China Securities Regulatory Commission (CSRC) in 2011.
Speaking at a February 26 press conference, Fang Xinghai, vice-president of the CSRC, told media that China will seek to attract more foreign investors to its commodity market.
Equities:
CSRC's Fang said China is looking to increase the foreign ownership limit for onshore brokerages as well. A source familiar with the regulators told GlobalRMB that such a change could come relatively quickly, with HSBC likely to be among the first to obtain majority ownership of a Chinese venture.
Fang also said that China’s pursuit of domestic stock market reforms will continue regardless of A-shares’ inclusion into MSCI’s Emerging Market Index. Fang added that whether A-shares will be included in the benchmark index is a commercial decision to be taken by MSCI and not China. He also maintained that any EM stock indices, be it from MSCI or other index providers, will not be complete without A-shares.
Finally, Fang added that China is contemplating the possibility of allowing non-China incorporated companies to list in the country. However, there are a series of roadblocks that need to be addressed such as differences in accounting standards and disclosure requirements.
Stock Connect:
CSRC has also published a top 20 list of the most conventional types of illegal activities. One case concerned a group of mainland investors setting up Stock Connect accounts in Hong Kong. The group, known as “Mr Tang and Co,” then used the accounts to artificially inflate the stock price and trading volume of Shanghai-listed Zhejiang China Commodities City Group. In addition, the group was able to circumvent a shareholding cap via their Stock Connect accounts, which they then used to manipulate five other stocks. Their profits through the scheme amounted to Rmb300m, the regulator said.
Bonds:
Pan Gongsheng, deputy governor of the People’s Bank of China, said last Thursday that foreign investors have a much bigger role to play in the country’s domestic bond market. Pan was referring to the low level of foreign participation in Chinese bonds with a market share of just 1.2% of total outstanding. He believes China’s inclusion in major global bond indices would be the key to boost foreign holdings and help to more accurately reflect the global bond market environment.
Hubs:
Data from the Macanese central bank showed that Macau's RMB-denominated cross-border trade settlement fell further in November 2016, the last month for which data is available. Trade in RMB was down 6% to Rmb8.1bn. While exports actually rose 24% to Rmb5.6bn, imports nearly halved to Rmb2.4bn.
RMB deposits in Macau, meanwhile, also saw another monthly drop, down 9.5% to Rmb36.6bn, the lowest recorded since July 2011.
Bank of Mongolia extended the bilateral currency swap line with People's Bank of China on February 22, according to local media. The swap line is for Rmb15bn, with maturity extended to 2020. China has active swap lines worth Rmb3.11tr, according to GlobalRMB data.