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The week in renminbi: Regulators tighten bond repo rules, China’s FX reserves at $3.14tr, BOC completes RMB payment for Chinese diplomats

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Chinese financial regulators publish fresh rules on the bond market to control leverage, China’s FX reserves grow again to $3.14tr in December, and Bank of China completes a RMB salary payment for Chinese diplomats abroad after the central bank’s call to push for cross-border RMB transactions.

Regulators:

  • China’s financial regulators have come up with new rules to regulate the bond market and reduce the leverage of Chinese institutional investors.
    In particular, the watchdogs identified bond repurchasing as a key tool for short term leverage. The new rules will require investors to report to authorities if bond repos hit a certain level of their overall debt portfolio. A media report last week claimed this red line will be set at 80% for deposit-taking institutions, 120% for securities firms, and 20% for insurance companies.
    “Bond repo has been the main channel for China’s financial institutions to leverage up to enhance their returns,” Tommy Xie, economist at OCBC, said in a January 9 note. “The introduction of a black and white hard ceiling will serve the regulatory purpose of deleveraging.”
    There will be a one year transitional period before the rules – jointly published by the People’s Bank of China, China Banking Regulatory Commission, China Insurance Regulatory Commission and China Securities Regulatory Commission on January 5 – come into force.

FX:

  • The size of China’s FX reserves stood at $3.14tr in December 2017, up $20.7bn or 0.66% from November, according to figures released by the State Administration of Foreign Exchange (Safe).
    This marked the 11th consecutive month of growth for China’s FX reserves. Safe said the strong performance of non-dollar currencies and stable cross-border capital flows in 2017 contributed to this upward trend, which is likely to continue in 2018.
    “As the global economy’s continued rebound brings about external demand, as [China’s] financial market further opens up, and as market expectations constantly improve, our country’s balance of payment and FX reserves will remain balanced and stable,” said a spokesperson at Safe.

Hubs:

  • The Milan branch of Bank of China has completed a wage payment in RMB for Chinese diplomats abroad, the bank said in a January 6 statement. The service will help tame foreign exchange risk – a key concern for diplomats, who usually receive their salary in local currencies, said the bank.
    The move came after the PBoC said on January 5 that Chinese banks should help facilitate cross-border RMB transactions, including the remittance of RMB from Mainland China.
  • RMB futures in Hong Kong recorded average daily turnover of 3,025 contracts in 2017, up 37% year-on-year, according to figures released by Hong Kong Exchanges and Clearing.

Quotas:

  • Regulators granted $385m of qualified foreign institutional investor (QFII) quotas in December 2017.
    Duke University bagged $10m, putting the total of its QFII quotas to $110m. Hong Kong-based SSIF Asset Management and Netherlands-based APG Asset Management obtained their first batch of quotas, worth $100m and $275m, respectively.
    Meanwhile, only one foreign institution obtained renminbi QFII (RQFII) quotas in the same period. Singapore Consortium Investment Management received its first batch of quotas, worth Rmb200m ($30.8m). Allocated RQFII quotas totaled Rmb605.062bn across 196 entities.

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Rank Arranger Share % by Volume
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2 CITIC Securities 21.06
3 China CITIC Bank Corp 9.72
4 China Merchants Bank Co 9.18
5 Industrial and Commercial Bank of China (ICBC) 7.56

Panda Bond Database

Pricing Date Issuer Country Size Rmb (m)
1 22-Nov-17 Province of British Columbia Canada 1,000
2 15-Nov-17 Daimler Germany 4,000
3 13-Oct-17 Global Logistic Properties via Iowa China Offshore Holdings Hong Kong 1,000
4 19-Sep-17 Skyworth Digital Holdings China 2,000
5 14-Sep-17 Bank of China (Hong Kong) (BOCHK) China 9,000

Offshore RMB Bond Top Bookrunners

Rank Bookrunner Share % by Volume
1 Standard Chartered Bank 31.63
2 BNP Paribas 16.57
3 HSBC 14.01
4 JP Morgan 13.39
5 Credit Agricole 11.30

Latest Offshore RMB Bonds

Pricing Date Issuer Country Size Rmb (m)
1 30-Nov-17 Ministry of Finance of the People’s Republic of China (MoF) China 7,000
2 15-Nov-17 Bank of China Paris Branch (BOC Paris) China 1,000
3 02-Nov-17 Hitachi Capital (UK) United Kingdom 500
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5 19-Oct-17 Commonwealth Bank of Australia (CBA) Australia 1,500

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