Something’s afoot in the world of RMB.
The renminbi fell on Tuesday by the most in a single day since 2012, dropping 0.35 per cent against the dollar in the onshore market by midday in Shanghai, and 0.7 per cent since Wednesday, as the FT reported.
The market has put this down to an imminent change in China’s foreign exchange regime. The narrative is that the PBOC is preparing to widen the trading band ahead of flotation and is spooking the market intentionally, so that it realises that the RMB goes down as well as up, and that carry-trades are no free lunch.
Not everyone is as convinced. Read more
Izzy wrote in May how China’s Rmb exodus is a huge (and still little-explored) story for the world economy, and it’s one that won’t be going away as China recorded a net capital account deficit in Q2. We’re wondering now how this might collide with risks to domestic liquidity — specifically, whether a combination of Rmb exodus and local banking problems might affect the People’s Bank of China’s ability to maintain financial stability?
A very brief recap on the Chinese foreign reserves-domestic liquidity nexus: Read more
In his latest move to support the development of China’s capital markets, Guo Shuqing, the newly installed head of the China Securities Regulatory Commission, will oversee the creation of a new body to
control facilitate short-selling. The regulator is also going to be the largest shareholder of the new organisation.
FT Alphaville tips our hat to this rather neat piece of controlled capitalism. The venture will likely be a nice little money spinner for the CSRC, once the fees and transaction costs start rolling in. Read more
China is for the first time to give formal backing to moves by British banks to turn the City of London into an offshore trading centre for the renminbi, UK government officials have told the FT. As George Osborne, the chancellor, prepares to hold talks in London with Wang Qishan, the Chinese vice-premier, on Thursday British officials say a joint statement by both countries backing the growth of renminbi trading in London is set to be the centrepiece of their meeting. Meanwhile Chinese officials told EU business executives that the yuan will achieve “full convertibility” by 2015, Bloomberg reports, according to EU Chamber of Commerce in China president Davide Cucino. Mr Cucino declined to identify the officials, saying only that the information was conveyed at a meeting, and said the move to convertibility would be taken in steps.
Lord Rothschild, chairman of London-listed RIT Capital Partners is working on a new private equity fund that will raise renminbi in China and invest it overseas, the FT says. The fund, J. Rothschild Creat Partners, aims to raise $750m by the end of the year from Chinese companies, and is one of the first such funds to gain regulatory approval. The capital markets have been opening up gradually to allow outbound investment but the process has been slow, starting with equities through a tightly regulated scheme and moving on to outbound private equity funds only this year. Beijing’s municipal government in March agreed to launch a fund with European private equity group A Capital Asia. Lord Rothschild’s group, a joint venture between RIT Capital, Creat Group, the Chinese investment conglomerate, and Quercus Associates, the investment advisory company. Foreign banks and funds including Blackstone, Goldman Sachs, Morgan Stanley and Carlyle have already set up renminbi-denominated private equity funds in China, although these focus mainly on domestic investments.
With bank credit being tightened across the country it seems clear that China’s property developers increasingly desire to fund via the bond markets.
Some, though, have been increasing bond sales more than others. Read more