Development of RMB Internationalization

Transcription

1 Development of RMB Internationalization RMB has become world s #6 payment currency, #3 trade finance currency (SWIFT), #8 FX currency (BIS) and the latest SDR basket currency. Trade Currency Investment Currency Reserve Currency Start of pilot cross-border trade settlement (2009) Creation of freely transferrable & convertible CNH market, dim sum bonds market (2010) IMF included RMB into SDR in 2015, effective in Oct 2016 Expansion of pilot programs ( ) Simplifying process ( ) Establishment of Free Trade Zones as test bed for new policies (2013-) China interbank bond market (CIBM) open to first group of overseas institutions (2010) RQFII (2011) leading to offshore funds, ETFs Cross-border in/out FDI (2011) At least 38 central banks hold RMB reserves as of 2014 (IMF 2015 survey) RMB accounted for 1. of world foreign reserves ($85Bn) as of YE16 (IMF COFER survey) Development of a new CIPS clearing system (2015-) dedicated to RMB cross-border payments Appointment of 23 clearing banks around the world to facilitate development in local markets CNH HIBOR (2013) Cross-border corporate treasury center ( ) Stock Connect (2014) HKMA PLP liquidity facility (2014) RQDII (2014) program that allows onshore investors to invest in overseas market PBOC has 33 currency swap facilities in force with other central banks, total size RMB 3Tn, outstanding utilization RMB 22Bn (YE 16), cumulative utilization over RMB 240Bn CN-HK Mutual Recognition of Funds (MRF) (2015) Development of panda bonds market (2015) China's new foreign debt regime (2016) China bonds included into bond index (2017) CIBM and onshore FX market open to more overseas institutions, latest: Connect ( ) 1

2 RMB Internationalization and Opening-Up of China Market The RMB is fast becoming an attractive global currency and the China bond market has gained its international position in terms of bond issuance and trading volume. Effective 1 st Oct 2016, RMB is included as the third-largest currency in the IMF SDR currency basket with 10.92% weighting, a significant step for RMB Internationalization th Largest Global Payment Currency China is the world s largest economy measured by purchasing power parity and as of Jan 2017, RMB was the 6 th largest global payment currency. RMB is the 3 rd largest currency in the IMF SDR currency basket. In Jun 2016, MAS announced that it would include RMB investments as part of its official foreign reserves, and in Aug 2016, the World Bank issued 500M SDR-denominated bonds, billed as Mulan bonds, in the China interbank market. World Payment Shares in SWIFT January 2017 Outstanding amount RMB 64.3 trillion The China bond market has grown 6 times in size since 2005, making it the 3 rd largest in the world by issuance, only after US and Japan. As of Dec 2016, total bond outstanding reached RMB trillion (USD 9.3 trillion). The market is also rapidly becoming more liquid, recording a RMB 485 trillion total trading volume as of June China Total Outstanding Amount Dec 2016, in RMB trillion Attracting Foreign Access to China Market QFII/RQFII (2011) CIBM Direct (2016) Connect (2017) Source: RMB tracker by SWIFT Source: Winds Source: Citi Research 2

3 CIBM: Unprecedented Pace of Opening Up to Foreign Investors RMB Participating Bank/ RMB Clearing Bank QFII / RQFII ROII Program Expanded FIIs Program Connect Year Published / Qualified Investors Market Access and Repatriation Central banks and monetary authorities RMB clearing banks in Hong Kong and Macau Participating overseas RMB clearing banks with positive offshore RMB balance from RMB cross-border business QFII and RQFII holder to apply CIBM access in a separate application process (Go through CSRC and SAFE first) Foreign Central Banks International Financial Organizations Sovereign Wealth Funds Approval Approval Registration Registration Quota Quota by bank QFII: Quota by investors RQFII: Quota by investor and market Investible Products Access Method to CIBM Cash bond repo (need NAFMII) Domestic commercial banks with agency qualification Cash bond Domestic commercial banks with agency qualification No quota Cash bond, bond repo, bond lending, bond forward, IRS, FRA PBOC as agent Domestic commercial banks with agency qualification Direct Participation Banks, insurance companies, securities companies, funds and other asset management firms, The investment products issued by these institutions; long-term investors recognized by PBOC, such as pension funds, charity funds, endowment funds QFIIs and RQFIIs Institutional investors based in Hong Kong, Macau and Taiwan No quota but need to filing investment size Cash bond, lending, bond forward, IRS and FRA (For hedging purpose only) Domestic commercial banks with agency qualification No quota and no need to file investment size Cash bond (initially) CMU Participant (Local Custodian in Hong Kong) who appoints an FX Settlement Bank Citi is licensed to play multiple roles involved in each of the above schemes and programs, such as bond and FX trading counterparty, bond connect market maker, local and global custodian, bond settlement agent, FX and cash bank, etc. We are fully committed to support investors no matter which of the above channels they choose to use for their China Access strategy FII refers to Foreign Institutional Investors, which include commercial banks, insurance companies, securities firms, fund management companies and other asset management institutions, and their investment product, and other mid-term or long-term institutions investors recognized by PBOC ROII refers to Relevant Overseas Institutional Investors, which include foreign central banks, international financial organizations, and sovereign wealth funds Source: PBOC, CCDC, SHCH, CSDC 3

4 Complex Regulatory and Operational Framework of Market types are regulated by different government bodies from issuance, trading and investor market perspectives, and cleared by different custodians, all of which create additional complexity for wide access to China s bond market. Regulates Market Trading People s Bank of China (PBOC) China Regulatory Commission (CSRC) Interbank Market (CIBM) Government s CCDC or SCH Custodian Transfer CSDC Exchange Market Government s PBOC Bills/s MOF Financial s Regulates the Issuance Financial s PBOC Corporate s Mid-term Financing Bills CSRC Convertible s Short-term Financing Bills NAFMII Detachable CB Enterprise s NDRC Enterprise s Eligible Investors ROII, RMB Clearing & RMB Participant Banks Non-listed Commercial Banks Listed Banks Trust Companies Social Security Fund Insurance Companies Co., Mutual Funds, QFII, RQFII Institutional & Retail Investors Regulates the Investors PBOC CBRC NCSSF CIRC CSRC Key: China Central Depository & Clearing Co., Ltd (CCDC); Shanghai Clearing House (SCH); China Depository and Clearing Corporation Limited (CSDC); Ministry of Finance (MOF); National Association of Financial Market Institutional Investors (NAFMII), formed in 2007 and supervised by PBOC ; National Development and Reform Commission (NDRC); China Banking Regulatory Commission (CBRC); National Council for Social Security Fund, PRC (NCSSF); China Insurance Regulatory Commission (CIRC) 4

5 China Market Statistics 3.88% 96.12% 9.72% 90.28% 13.98% 86.02% 23.66% 76.34% %% % % 27.66% 72.34% CIBM- China Central Depository and Clearing (CCDC) Total AUC as of June 2017 ~RMB46.4 Trillion Capital Instrument 2% Financial 4% Agency 3% Policy Bank Bills 2 China Development Bank; The Import-Export Bank of China; Agriculture Development Bank of China Enterprise s 8% Historical Trading Volume (RMB in Trillions) Asset Backed MTN 2% Government 26% Local Government 2 CIBM - Shanghai Clearing House (SHCH) Total AUC as of June 2017 ~RMB15.9 Trillion SME Super SCP Collective / SCP Note 1 0% Agency PPN 13% Other 0% Asset Backed AMC Financial Corporate Central Negotiable Bank Bills CD 55% 0% 50% Source: CCDC Source: SCH Source: CSDCC MTN 23% China Exchange Market Total AUC as of June 2017 ~RMB8.4 Trillion Convertible/ Exchangeable SME PE 14% Asset Backed Government Local 8% Government 3% Policy Bank Enterprise FY10 FY11 FY12 FY13 FY14 FY15 FY est. as of Jun Exchange Market China Interbank Market Source: Winds 5

6 CIBM Foreign Institution Investors No. of Investors Holdings (RMB in Billions) 88% Total China Interbank s Total CIBM Depository Balance RMB62.3 trillion As of June 2017, 88% of China onshore bonds under custody are in CIBM (RMB62.3 trillion). Stock Exchanges and Counter accounted for 12%, against a total bond market size of RMB70.7 trillion 0.76% Cash Trading by Foreigners Cash bond trading volume at RMB3.14 trillion (1Q17) Most foreign investors could only invest in cash bonds in CIBM. Within 1Q17, 2,569 cash bond trades were executed in the aggregated volume of RMB3.14 trillion. This represents 0.76% of total CIBM trading volume 1.8% s held by Foreigners Total foreigners holding bonds RMB806 billion As of May 2017, there were 487 foreign investors in the market, and foreign holdings of China domestic bonds was RMB806 billion or 1.8% of the market. Total Depository Balance as of May 2017 was RMB44.8 trillion Source: CFETS CIBM 2016 Summary dated January 13, 2017; CFETS Website, PBOC BSA Meeting dated June 13, Foreign Ownership of China s No. of Foreign Investors by Segment Q17 No. of Investors Holdings (RHS) Source: CCDC, PBOC. 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, Q16 2Q16 3Q16 Q416 1Q17 2Q FII QFII / RQFII/Product ROII Source: CFETS CIBM 1Q16 Summary dated April 7, 2016; 1H16Summary dated July 11, 2016; 3Q16 Summary dated October 12, 2016; FY16 Summary dated January 13, 2017; 1Q17 Summary dated April 12,

7 CIBM Foreign Institution Investors Cash Trade Statistics of the 403 foreign institutions Investors in CIBM are engaged in Cash Trading. The total transaction volume amounted to 12,770. Total settlement amount was RMB127.7 billion (51.2% Y-o-Y growth), representing 0.5% of all Cash Trades. Transaction Volume by Maturity Transaction Volume by Counterparty Type 5 7 Years 7 10 Years Provincial Commercial Banks Others 6% 3 5 Years 13% Upto 1 year 53% Non-state-Owned Commercial Banks Companies 9% Large Commercial Banks 36% 1 3 Years 20% Foreign Banks 35% Transaction Volume by Issuer Type Trade Transaction Volume by Investor Type Corporate MTN 3.4% NCD 4.3% Others 5. Central Bank Bills 7.3% Policy Bank 34.2% Treasury 45.6% Companies 0.2% Insurance Companies 0.9% Companies Products 2.6% Mutual Fund Products 0. ROII 33. Insurance Companies Products 1.2% QFII / RQFII 7.2% Commerical Banks 54. Source: CFETS CIBM 2016 Summary Circular dated January 13,

8 Considerations Stabilization of RMB FX Global major bond indices inclusion Access program upgrade driven by Chinese regulators 8

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