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China’s Market News: New Capital Flow Channels: SHSC, QDFII2

China’s Market News: New Capital Flow Channels: SHSC, QDFII2

Renee Mu, Currency Analyst

This daily digest focuses on market sentiment, new developments in China’s foreign exchange policy, changes in financial market regulations and Chinese-language economic coverage in order to keep DailyFX readers up-to-date on news typically covered only in Chinese-language sources.

- Hong Kong is ready to launch the Shanghai-Hong Kong Stock Connect program, which is a new channel for capital flows.

- Guangdong plans to introduce QDFII2 program for Chinese individual investors to purchase financial products overseas.

- PBOC injected 162.5 billion yuan on April 18 in the effort to facilitate short-term liquidity.

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Sina News: China’s most important online media source, similar to CNN in the US. They also own a Chinese version of Twitter, called Weibo, with around 200 million active usersmonthly.

- China’s Central Bank injected 162.5 billion yuan into the market through Medium-term Lending Facility (MFL) deals with 18 financial institutions. 83.5 billion yuan of these loans will mature in 3 months with an interest rate of 2.75%; the rest will mature in 6 months with an interest rate of 2.85%.

- The Secretary of Hong Kong Financial Services and the Treasury Bureau, Chen Jiaqiang, said that Hong Kong is ready to launch the Shanghai-Hong Kong Stock Connect (SHSC); the region is waiting for China’s central government to approve the program, which is expected to be soon. SHSC is a program that allows mainland and Hong Kong investors to trade stocks on each other’s stock exchange. This is considered to be a channel for capital flows. Mr. Chen also said that Hong Kong will continue to promote the Yuan’s development in the region. As of the end of March, 27 funds from the mainland have been approved to trade in Hong Kong and 6 funds from Hong Kong have been approved to trade on the mainland. By the end of February, Yuan deposits in Hong Kong reached 940 billion yuan, which is considered sufficient to support the Yuan’s offshore business.

Guangdong Province, where the city of Shenzhen is located, also confirmed on April 18th, that the region is preparing to launch the SHSC soon. Also, the regulator is planning to introduce the Qualified Domestic Individual Investor (QDII2) program, which allows domestic individual investors who meet certain standards to purchase stocks, bonds and other financial products in overseas markets. This is considered to be a channel for capital flows out of China.

Hexun News: Chinese leading online media of financial news.

- In March, 62 out of 70 medium-to-large cities in a survey reported price increases in new home sales from the previous month; the largest monthly increase was 5.4% in Nanchang, a second-tier city in Southeastern China. In terms of existing home sales, 54 cities reported price increases from last month; the largest monthly increase was 9.3% in Hefe, a second-tier city in Eastern China. The March data shows that the inflation in the property sector has transitioned from the largest cities, also called tier-one cities (Beijing, Shanghai, Shenzhen and Guangzhou) to the second-largest cities as the tightening measures in the largest cities have begun to take effect. At the same time, housing prices in smaller cities did not increase as much as expected; the monthly change was from -1% to 1%.

China Finance Information: a finance online media administrated by Xinhua Agency.

- The Minister of Finance, Lou Jiwei, responded to recent market speculation on a debt-to-equity swap program. He said that authorities have been discussing it, but no plans have been determined yet. Since March, there have been unofficial reports that China will launch the debt-to-equity swap program to help banks reduce non-performing loans as well as helping state-owned enterprises to cut high debt ratios. However, as defaults have been increasing of recent, local financial institutions doubt whether the program will be launched as it was originally planned.

Written by Renee Mu, DailyFX Research Team

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.