China allows $314m corporate bond default
China has allowed China Shanshui Cement Group, a major cement producer, to default on an RMB 2bn ($314m) note, the country’s biggest corporate bond default yet.
The default underscores the decline of heavy industry in China as it transitions to a consumption-driven economy.
Until last year, the government bailed out troubled borrowers to preserve investor confidence. But China allowed its first bond default last year in a bid to make its financial system more market-oriented.
That shift in attitude “will obviously lead to more default cases,” said Ivan Chung, who is in charge of China credit research for Moody’s Investors Service.
The most vulnerable companies are in fields like steel, mining, solar equipment and other sectors where debts are high and supply exceeds demand.
Shanghai Daily (AP report), 13 November
Inflows into RQFII ETFs
During the third quarter of this year, US-domiciled China equity ETFs saw a massive outflow of around $2bn, according to Jackie Choy, passive fund strategist for Morningstar. Fund outflows were less pronounced with Europe-domiciled products, which saw $500m exit during the same period.
Choy said the trend seems to be reversing. "We haven't got all the numbers yet, but just looking at RQFII ETFs, we had around $900m of inflows in September and October."
Source: Morningstar China, 12 November
China sees RMB as global currency by 2020
China is determined to deliver economic and financial reforms over the next five years, which will help the RMB become an international currency, central bank governor, Zhou Xiaochuan, said in an opinion piece in Caixin.
These reforms include improving central bank communication and guiding market expectations to enhance monetary policy.
Zhou made his comments amid growing doubts in markets about China’s commitment to see through comprehensive financial reforms.
While Zhou spoke about using new mechanisms to develop financial risk tools, he did not offer details on whether policy makers will provide routine briefings to accompany rate changes, similar to other Asian developed countries.
Caixin.com, 11 November
ICBC set for Lux-domiciled RQFII
The China Securities Regulatory Commission has approved the Industrial and Commercial Bank of China (Europe) for an RQFII quota.
An ICBC official said that with its RQFII status, it plans to launch a new fund, domiciled in Luxembourg, for domestic investment in China.
HSBC has been appointed as custodian bank.
financialnew.com.cn, 7 November
PBoC relaxes MRF quota guideline
The Peoples Bank of China (PBoC) released a mutual recognition of funds (MRF) guideline on 6 November, 2015, stating that no approval is needed for the quota.
It added that the funds raised through the MRF can flow between the territories in both RMB and foreign currencies, but settlement via RMB is preferable.
Peoples Bank of China, 6 November