China capital markets

By Eswar Prasad, Karim Foda, and Abhinav Rangarajan

China is making steady progress on its path to making the renminbi an international currency, as the FT writes in a Special Report, The Future of the Renminbi, published today.

See here for an Interactive graphic that traces the renminbi’s progress since 2000.

China continues to gradually open up its capital account, make offshore renminbi liquidity more easily available, and sign up more renminbi trading centers (London and Frankfurt most recently). To become a reserve currency, China also needs to let the renminbi’s value be market-determined rather than being tightly managed relative to the US dollar.

On March 16th of this year, China took another step towards freeing up its currency. The daily trading band around the renminbi’s central value relative to the U.S. dollar was widened from 1 percent to 2 per cent in either direction. The reasonable expectation had been that this would lead to faster appreciation of the currency and more volatility. Instead, the opposite happened. Was the shift to a wider trading band just a head fake? Continue reading »

China’s leading credit rating agency will soon begin to provide English language ratings for local Chinese debt in the latest sign of a growing desire on the part of international investors to access the country’s highly restricted domestic debt markets.

“Dagong is making preparations to release ratings for onshore debt in English early next year,” the company’s chairman, Guan Jianzhong, told beyondbrics. “There are more international investors looking at Chinese debt.” Continue reading »

By Andrew Collier, Orient Capital Research

The threat of a collapse in the shadow banking market looms over China like a hawk swooping down on its prey. Shadow loans are made outside the formal banking system and are only lightly regulated, making them a significant source of financial stress if the Chinese economy slows significantly. One of the biggest source of shadow loans, Trusts, is showing signs of weakness that could turn into a big problem for China’s economy.

There now is a staggering Rmb 11.7tn in outstanding Trust loans, approximately one-quarter of the entire shadow banking market. Using a list of 31 failed Trusts supplied by the Central University of Finance and Economics in Beijing, we examined them to see what they tell us about the fate the entire Trust industry – and by extension shadow banking in China.

What we found is a disturbing harbinger of things to come for China’s economy. Continue reading »

Two of China’s stodgiest state-controlled entities locked horns this week as state broadcaster CCTV accused a major state bank of money laundering and violations of the country’s foreign exchange rules.

In a report aired on Wednesday, China Central Television claimed that Bank of China (BOC), the country’s fourth largest lender, was helping clients circumvent foreign exchange controls using a service called “Youhuitong,” a play on words that translates as “Preferential Transfer Channel.”

The incident highlights the many regulatory grey areas that have emerged as China has launched a slew of financial reform pilot programmes. Many such programmes take the form of broad guidelines, while detailed regulations appear much later, if at all. Continue reading »

The end of a year-long freeze on stock market listings in China might sound look good news for investors but for several reasons Chinese stocks fell on Monday, the first day of trading since the weekend announcement, with the ChiNext Composite index – representing China’s answer to the Nasdaq exchange – plunging 8.26 per cent, its biggest single day decline in its four-year history. Continue reading »

By Jingdong Hua of the IFC

China’s economic growth has been extraordinary, averaging about 10 per cent a year for the past three decades. Despite the recent economic slowdown the country added 7.25m jobs in the first half of this year. The capital markets have been a driver of China’s economy, and their continued development is essential for sustained growth. Continue reading »

Chinese government bond futures are back, ending an 18-year halt after an investment scandal shuttered the market. The move is part of efforts to encourage development of the government bond market and offers a hedge against market volatility.

The China Securities Regulatory Commission (CSRC) said on Friday that a proposal to issue government bond futures had been approved by the State Council and that the futures would be publicly traded on the China Financial Futures Exchange (CFFEX) in two months’ time. Continue reading »

When Xiao Gang, the new boss of the China Securities Regulatory Commission, used ‘China dream’ as the theme of his first public speech following his appointment back in March, he was making an obvious echo of president Xi Jinping’s evoctaion of a ‘China dream’. Xiao’s speech was published on CSRC’s website to just before China’s May 4th Youth Day.

However, whether Xiao really is a reformist remains to be seen. He certainly seems willing to continue the reforms started by his predecessor, Guo Shuqing. But progress will require something more practical than dreams. Continue reading »

What should we make of the appointment of China’s new top securities regulator? The expectations are: stability, predictability, and no great drive for further market reform. But we might all be surprised.

Xiao Gang (pictured), until this week the chairman of the Bank of China, is being interpreted as a cautious new head of the China Securities Regulatory Commission. Continue reading »

In the pantheon of financial news, China’s decision to open its interbank bond market to foreign investors may seem a small item. But the announcement, made on Wednesday, is a big one for two reasons.

First, it gives foreign institutions access to a major asset class. Second, its timing signifies that China’s financial reform train is still very much in motion just a few days after the dust finally settled on the country’s leadership reshuffle. Continue reading »

Slowly but surely, BlackRock’s designs for its China push are falling into place.

Having recruited Mark McCombe from HSBC in Hong Kong to run Asia just 16 months ago, the world’s biggest asset manager this week has hired Wang Hsueh-ming (王學明), one of Goldman Sach’s top lieutenants in China, to head up its operations there. Continue reading »