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China’s Market News: PBOC Addresses Weakness in Yuan Index

China’s Market News: PBOC Addresses Weakness in Yuan Index

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.

- The PBOC explained the reasons for the Yuan Index’s weakness of recent.

- Bank of China issued $3 billion of green bonds, the largest international issuance of its kind.

- The Central Bank withdrew 180 billion yuan. SHIBOR fell below 2.0000%, the first time in a month.

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PBOC News: China’s Central Bank.

- China’s Central Bank published an official announcement to address the weakness in the Yuan Index of recent. The Central Bank said that the CFETS Yuan Index, BIS Yuan Index and SDR Yuan Index on June 30 dropped -2.19%, -2.39% and -0.47% respectively compared to a month ago. There are a few reasons for Yuan’s depreciation against the currency basket in June: A) traditionally, the month of June is a distribution period for most listed companies. Distributing dividends to overseas investors increased the demand in foreign currencies and thus drive down the Yuan rates. B) The increasing Chinese investment to overseas also pushes the demand in foreign currencies higher. C) The Brexit decision has led to global risk aversion and in-turn drove the US Dollar rising against the Chinese Yuan. D) China’s inflation level is higher than that in the US. This adds devaluation pressure on the Yuan rate as well.

Hexun News: Chinese leading online media of financial news.

- The PBOC issued 30 billion yuan of 7-day reverse repos on July 6th. After deducting the 210 billion yuan of reverse repos maturing on the day, the net liquidity withdrawal was 180 billion yuan. The liquidity need has seen decreases since July. Shanghai overnight interbank borrowing rate fell below 2.0000% on July 7th, the first time in a month. Yesterday, the PBOC withdrew 100 billion yuan of liquidity. It is expected that the Central Bank will continue to remove cash from the market as the liquidity shortage is eased.

- The government of Chongqing, one of the four direct-controlled municipalities in China, set up an asset management company designated to deal with non-performing assets (NPA). The registered capital of the company is 5 billion yuan. The scale of China’s NPA in 2016 is expected to reach 1.5 trillion yuan, according to Guotai Junan Securities. With such a high amount, the central government itself may not be able to solve all the issue. Thus, local governments need to step in and handle the NPA in the region. Chongqing’s management company will not only restructure NPA from banks and state-owned companies but can also take over NPA from the private sector.

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

- Bank of China issued a total amount of $3 billion of ‘Green Bonds’, the largest international issuance of its kind. The issuance was made in three currencies: $2.25 billion Dollar-denominated bonds, €500 million Euro-denominated bonds and 1.5 billion Yuan-denominated bonds. The Chinese government has been proactively promoting domestic environmental projects. Thus, the green market is growing fast. The green bonds issued by Chinese companies in the domestic market in 2016 has reached 53.15 billion yuan. Jili Group issued $400 million offshore green bonds. Also, New Development Bank plans to issue 3 billion yuan of green bonds this month.

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.

- The National Development and Reform Commission (NDRC) released further reform plan on China’s healthcare system. The plan requires public hospitals to gradually lower medicine prices and physical examination costs. According to NDRC, the Chinese household saving rate is approximate 50%, far above the global average. The high savings intends to cover two major costs: health care and education costs. China is transforming from an export-driven economy to a consumption-driven economy. In order to encourage Chinese households to use their savings and increase consumption, the government has spent considerable efforts to improve the domestic health care system and the education system.

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