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China's Market News: Banking Regulators Curb Leverage through Wealth Management Products

China's Market News: Banking Regulators Curb Leverage through Wealth Management Products

Renee Mu, Currency Analyst

This daily digest focuses on Yuan rates, major Chinese economic data, market sentiment, new developments in China’s foreign exchange policies, changes in financial market regulations, as well as market news typically available only in Chinese-language sources.

- The onshore Yuan’s borrowing costs remained elevated despite liquidity injections from the PBOC.

- China’s Central Bank takes additional steps to curb the rising leverage in the financial system.

- The profits of state-owned enterprises dropped -1.6% in the first nine months on an annualized basis.

To receive reports from this analyst,sign up for Renee Mu’ distribution list.

Yuan Rates

- The PBOC strengthened the Yuan by +39 pips or +0.06% against the U.S. Dollar to 6.7705 on Wednesday. Following the guidance, the offshore Yuan (USD/CNH) retraced around 6.7805 and the onshore Yuan (USD/CNY) traded around 6.7707.

- The Central Bank added 105 billion Yuan of 7-day reverse repos, 75 billion Yuan of 14-day reverse repos and 30 billion Yuan of 28-day reverse repos on Wednesday. After deducting 85 billion Yuan of reverse repos matured on the day, the net liquidity added was 125 billion Yuan; this is the sixth consecutive trading day that the regulator pumps money into the market.

Despite liquidity injections, the onshore Yuan’s borrowing costs remained elevated. The overnight, one-week, two-week and one-month funding costs of the Yuan in the Shanghai interbank market increased 1.0, 0.5, 0.6 and 0.8 BP respectively from a day ago. Normally, money market liquidity tightens as it approaches to the end of a quarter. However, the liquidity condition seen recently is unusual and unrelated to seasonal factors.

Market News

Hexun News: Chinese leading online media of financial news.

- The PBOC will take into account off-balance sheet financing of commercial banks in the Macro Prudential Assessment (MPA), a system to evaluate the financial health of banks. The move aims to curb the fast growing bank lending, including sales of wealth management products (WMP), which are normally not counted on banks’ balance sheet. The result of the MPA will determine banks’ required reserve ratios: a bank with poor performance in the assessment will be required to increase deposits held at the Central Bank. Two days ago, the banking regulator, China Banking Regulatory Commission, announced to strengthen supervision over banks’ WMP and real-estate trusts, another move to control the rising leverage in China’s financial system.

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 profits of state-owned enterprises (SOEs) in the first nine months of 2016 dropped -1.6% to 1.721 trillion Yuan on an annualized basis, according to a report issued by the Ministry of Finance. In specific, the profits of central government-led SOEs dropped -5.4% while the profits of local governments-led SOEs increased +8.1%. In terms of industries, electronics, real-estate construction and auto companies had the highest growth in profits; oil, tobacco and chemical firms experienced the lowest growth; non-ferrous SOEs reported losses during this span of the time.

- Chinese regulators lowered the standard for non-financial institutions to participate in China’s interbank bond market, according to a statement issued by National Association of Financial Market Institutional Investors on October 26th. The required net assets of a participating institution have been reduced to 10 million Yuan from 30 million. This will encourage more institutions to invest in the bond market.

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

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