20180614-兴业研究-Foreign_Investors_Increased_Chinese_Deb_Holding_8页_559kb

Summary of Foreign Investors' Increased Chinese Debt Holdings

Core Content

This document provides an overview of the U.S.-China trade tensions in 2018 and highlights the increase in foreign investors' holdings of Chinese debt. It also discusses the performance of China's foreign exchange reserves and market data related to the RMB exchange rate and related financial instruments.

Main Points

U.S.-China Trade Tensions

• The U.S. and China engaged in a series of tit-for-tat tariff actions throughout 2018, but a full-blown trade war was unlikely.
• Both sides made efforts to de-escalate tensions, with the U.S. recognizing China's progress in RMB exchange rate liberalization and China committing to open its financial sector further.
• Key events in the trade tensions include:
  • April 8: Chinese officials announced plans to expand imports, open up the financial sector, and protect intellectual property.
  • April 13: U.S. Treasury report softened its stance on China's trade surplus and market access.
  • May 3: U.S. Treasury Secretary Steven Mnuchin led trade talks in China, but no agreement was reached.
  • May 15: China's Vice-Premier Liu He visited the U.S., leading to a consensus on eliminating import tariffs.
  • May 29: The U.S. imposed additional 25% tariffs on USD50 billion worth of Chinese goods.
  • June 3: China threatened to withdraw trade commitments if the U.S. persisted with tariffs.
  • June 7: ZTE received a new settlement after a seven-year export ban.
  • June 8: China's May import growth exceeded market expectations, showing resilience in foreign trade.

Increase in Foreign Debt Holdings

• Foreign investors significantly increased their holdings of Chinese central government bonds in the first five months of 2018, with a rise of 229.4 billion yuan.
• The share of Chinese central government bonds held by foreign investors in the total central government bond balance reached 6.7%.
• The overall share of Chinese bonds held by foreign investors in the total bond balance rose to 3.1%.
• Factors contributing to this increase include:
  • The "Bond Connect" program, which facilitates foreign investment in RMB-denominated bonds.
  • Relaxation of cross-border capital controls.
  • The inclusion of RMB-denominated government and policy bank securities in the Bloomberg Barclays Global Aggregate Index starting in 2019.
  • Several central banks increased their yuan holdings as part of their foreign currency reserves.

China's Foreign Exchange Reserves

• China's foreign exchange reserves in May 2018 were SDR2,195.8 billion (USD3,110.6 billion).
• After removing valuation effects, the reserves increased by USD3.9 billion, indicating continued demand for RMB from Chinese businesses and individuals.

Market Data Overview

• The RMB (CNY) strengthened against the USD in the week of June 4 to June 10, but later rebounded from the 120-day moving average.
• Hong Kong's Financial Secretary emphasized the continued importance of Hong Kong as a gateway to the mainland's financial market, with plans to expand stock connect quotas and introduce A-share-related financial derivatives.
• Various market indicators, including the USDCNY and USDCNH exchange rates, swap rates, and forward rates, showed fluctuations and changes in the week of June 4 to June 10.
• Figures related to interbank lending rates, daily spot trading volumes, and implied volatility of RMB options against USD and other currencies were also presented.

Key Information

• The U.S. and China's trade tensions did not lead to a full trade war, with both sides showing willingness to negotiate.
• Foreign investment in Chinese debt increased, driven by policy reforms and inclusion in global indices.
• China's foreign exchange reserves showed a net increase after removing valuation effects, suggesting continued confidence in the RMB.
• Market data reflects the dynamic nature of the RMB exchange rate and related financial instruments during the period.

Conclusion

Despite rising trade tensions, foreign investors continued to increase their holdings of Chinese debt, indicating ongoing confidence in the Chinese economy. Meanwhile, China's foreign exchange reserves and currency market dynamics showed resilience and adaptability in the face of external pressures.