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Wed, 29th March 2017

Anirudh Sethi Report

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Archives of “renminbi” Tag

People’s Bank of China sets yuan reference rate at 6.8701 (vs. Friday at 6.8845)

PBOC open market operations today … well, the bank says none today. The Bank says bank liquidity is high.

By skipping OMOs in effect the bank has drained a net 80bn yen (maturing RRs)
CNY set at its highest against the USD for a month today.
RMB index: On Friday the CNY was set against its basket at 92.91, down 0.41 on the week

Why China Unexpectedly Hiked Rates 10 Hours After The Fed

As we reported on Wednesday evening, something interesting took place on Thursday morning in Beijing: in a case of eerie coordination, China tightened monetary conditions across many of the PBOC’s liquidity-providing conduits just 10 hours after the Fed raised its own interest rate by 0.25% for only the third time in a decade.

The oddly matched rate hikes, prompted Bloomberg to think back to the mysterious “Shanghai Accord” of February 2016, which took place during the peak days of last year’s global capital markets crisis, and whose closed-door decisions – to this day kept away from the public – prompted the market rally that continues to this day. As Bloomberg wrote, the coordinated “response suggests that pledges by the Group of 20 economies a little over a year ago in Shanghai to “carefully calibrate and clearly communicate” policies may not have been hollow after all.”

That said, it was not the first time the People’s Bank of China has acted on the heels of a Fed move. At the peak of the financial crisis, the PBOC cut lending rates after six of its counterparts, including the Fed, had announced a simultaneous rate cut. That October 2008 move enhanced China’s emerging reputation as a global player on the international economic-policy circuit. “Growth divergence is morphing into growth synchronization,” said Chua Hak Bin, a Singapore-based senior economist with Maybank. “Policy divergence was also a narrative for those expecting a strong dollar, but that is moving now to policy synchronization.”

Coordinated or not, as of last night financial conditions in China, like in the US, have become incrementally tighter even if both the Chinese and US stock markets failed to respond accordingly.

China defence budget tops Rmb 1tn ($145bn) for first time

China’s defence spending will exceed Rmb1tn ($145bn) for the first time this year, according to new figures from the annual budget released by the country’s finance ministry. The Ministry of Finance on Monday announced that the annual budget for military defence in 2017 would come to Rmb1.044tn, reflecting a 7 per cent rise from the previous year. That growth rate – announced at the weekend, but without the landmark renminbi figure – nonetheless represents a slowdown from 2015′s rise of 8 per cent. Both the quickest rise and largest absolute increase in China’s military spending plans came in 2014 when spending grew 12 per cent year on year, a rise of Rmb88bn. China’s defence budget has grown at a double-digit rate for the last 25 years, and the country now ranks second only to the US in terms of global military spending. That remains a distant second, however, US President Donald Trump has asked for a 10 per cent increase in US defence spending this year, potentially adding another $54bn to a military spending budget that exceeded $600bn in 2016.

In Latest Tightening Move, China To Cut Money Supply Growth To 12%

For a majority of China watchers, while Beijing’s goalseeked GDP reports are largely dismissed as politburo propaganda, most of the attention falls on the PBOC and banking sector’s credit creation, and particularly, how this translates into broad money supply, or M2, growth: after all, in a nation which has roughly $35 trillion in bank assets, the biggest variable is how much cash is being injected into the system, and what happens with said cash.

Which is why a Reuters report overnight that China plans to target broad money supply growth of around 12 percent in 2017, down from 13 percent in 2016, has been promptly noted as the latest signal to contain debt risks while keeping growth on track. The M2 growth target was endorsed by leaders at the closed-door Central Economic Work Conference in December, according to sources with knowledge of the meeting outcome.

As a reminder, yesterday even the NY Fed released a note in which central bank researchers warned about the unsustainability of Chinese debt. Under the PBOC’s new “prudent and neutral” policy, the central bank has adopted a modest tightening bias in a bid to cool torrid credit expansion, though it is treading cautiously to avoid hurting the economy. 

“It’s not necessary to maintain last year’s high money supply growth,” said a source who advises the government. “A money supply rise of 11 percent should be enough for supporting growth, but we probably need to have some extra space, considering risks in the process of deleveraging.”

In 2016 China’s money supply target was 13%, roughly double the country’s GDP , though it ultimately grew just 11.3% due to the effects of the central bank’s intervention to support the yuan currency, which effectively drained yuan liquidity from the economy.  Last year’s M2 target reflected Beijing’s focus on meeting its economic growth targets, but top leaders have pledged this year to shift the emphasis to addressing financial risks and asset bubbles.

China Just Created A Record $540 Billion In Debt In One Month

One week ago, Deutsche Bank analysts warned that the global economic boom is about to end for one reason that has nothing to do with Trump, and everything to do with China’s relentless debt injections. As DB’s Oliver Harvey said, “attention has focused on President Trump, but developments on the other side of the world may prove more important. At the beginning of 2016, China embarked on its latest fiscal stimulus funded from local government land sales and a booming property market. The Chinese business cycle troughed shortly thereafter and has accelerated rapidly since.”

DB then showed a chart of leading indicators according to which following a blistering surge in credit creation by Beijing, the economy was on the verge of another slowdown: “That makes last week’s softer-than-expected official and Caixin PMIs a concern. Land sales, which have led ‘live’ indicators of Chinese growth such as railway freight volumes by around 6 months, have already tailed off significantly. “ 

China’s FX reserves end-Dec USD 3.011trln vs USD 3.052trln prev

Chinese FX reserves data published a short while ago 7 Jan

  • total reserves now near 6-year lows
  • gold reserves USD 67.878bln vs 69.785bln prev
  • gold reserves 59.24mln troy oz vs 59.240mln prev

A drop in reserves of $41bln, albeit less than the $51bln expected versus a $69bln drop in November and the 6th straight month of declines.

The PBOC has now been forced to reduce its reserves by half a trillion USD since Aug 2015 after it devalued the yuan in a surprise move.

Plenty of fun and games this past week for the offshore and onshore yuan with o/n depo rates surging above 95% at one point.

Yesterday the PBOC hiked CNY by the biggest amount in 11 years vs USD and the onshore pair closed at 6.9230. The Chinese MOFCOM also had this to say on outflow curbs.

Bitcoin Surges Above $1,000 As China Unveils New Capital Controls

As noted yesterday, for the first time in three years, and only the second time in history, bitcoin rose above $1,000 in Yuan-denominated Chinese trading, however it was limited to the lower side of this “round number” psychological barrier in US trading, as BTC flirted with $999.99 for most of the day on the popular Coinbase exchange, without crossing it.

Overnight, however, Chinese demand proved too great and US markets had no choice but to arb the difference. So with Bitcoin trading in China at an implied price of over $1,050 at this moment, bitcoin finally soared above $1,000 in the US as well, trading just around $1,024 on Coinbase as of this moment.

 

China’s True FX Outflows Since August 2015 Are $1.1 Trillion, Double The Official Number

Two months ago, when looking at an alternative measure of Chinese capital outflows using SAFE data, Goldman found that contrary to official PBOC reserve data, “China’s Capital Outflows Are Soaring Again”, having hit $78 billion in September.

Over the weekend, and following the latest PBOC data which revealed an outflow of $56 billion in November (which was only $34 billion when FX adjusted), Goldman repeated its FX flow calculation using SAFE data, and found the China continues to mask the full extent of its outflows, which in November spiked to $69 billion, and that “since June, this data has continued to suggest significantly larger FX sales by the PBOC than is implied by FX reserve data”, once again suggesting that China is eager to mask the true extent of reserve outflows, perhaps in an attempt to not precipitate the feedback loop of even further panicked selling of Yuan and even more outflows, and thus, even more reserve depletion.

According to Goldman’s MK Tang, money has been leaving in yuan payments for 14 consecutive months, while the central bank’s yuan positions have slumped the most since January. The situation could get worse, said Banny Lam, head of research at CEB International Investment Ltd, cited by Bloomberg.

China to start direct trading between yuan and 7 more currencies from 12 Dec

PBOC out with the announcement a short while ago 9 Dec

I included it in another post but probably worth a separate mention.

PBOC announces that China will start direct trading between yuan and 7 more currencies from 12 Dec:

  • PLN
  • SEK
  • TRY
  • MXN
  • NOK
  • DKR
  • HUF

CFETS, the part of the PBOC that runs the interbank FX market, says the aim is to facilitate bilateral trade and investment with these countries and lower exchange rate costs.

Previously the US $ has been used to determines the cross rate for the yuan against these ccys.

China says they will further advance supply-side structural reforms in 2017

Reuters reporting statement published on Xinhua 9 Dec

  • will further open its economy in 2017
  • will work proactively to attract foreign investment
  • certain that China will complete its key economic targets for 2016

PBOC also announces that China will start direct trading between yuan and 7 currencies from 12 Dec inc

  • PLN
  • SEK
  • TRY
  • MXN
  • NOK
  • DKR
  • HUF

CFETS the part of the PBOC that runs the interbank FX market says the aim is to facilitate bilateral trade and investment with these countries and lower exchange rate costs.

Previously the US $ has been used to determines the cross rate for the yuan against these ccys.