China scraps foreign investment cap in stocks, bonds

BEIJING - China on Tuesday removed limits on foreign institutions wanting to invest in its stocks and bond markets, as it seeks to attract overseas investment amid a slowing economy and a trade spat with the United States.

Foreign individuals are barred from investing directly in China's markets, but the country allows certain institutions to buy shares under the so-called Qualified Foreign Institutional Investor (QFII) scheme.

The State Administration of Foreign Exchange (SAFE) said Tuesday it has removed the overall ceiling of $300bn on total asset purchases under this scheme, offering unfettered access to the world's second-largest capital market.

A cap on a yuan-denominated sister scheme -- the Renminbi Qualified Foreign Institutional Investor (RQFII) program, which allowed overseas institutions to invest in Chinese securities using the offshore yuan -- was also removed on Tuesday.

"Foreign institutional investors with the relevant qualifications can remit funds to carry out investment in securities in compliance with regulations, greatly enhancing the convenience for foreign investors participating in the onshore financial market," the regulator said in a statement.

The regulator said it was also seeking permission from China's cabinet to scrap administrative licenses needed by foreign investors to purchase stocks and bonds.

The moves aim to "facilitate foreign investors to invest in the domestic securities market and enhance the depth and breadth of China's financial market opening," said Wang Chunying, a spokeswoman for SAFE.

Just over one-third of the $300 billion QFII investments quota had been used by end-August, according to SAFE data.

Wang said that a yuan-denominated investment scheme, or RQFII program, will now be open to all overseas institutional investors that meet certain requirements. Earlier it was only available to investors from certain countries or regions on a pilot basis. 

China has recently eased restrictions on foreign investment in the financial sector, as the world's second-largest economy fights slowing growth at home and a damaging trade war with the United States.

China will remove shareholding limits on foreign ownership of securities, insurance and fund management firms in 2020, one year earlier than originally planned, the Financial Stability and Development Committee said in July.

Foreign investors will also be encouraged to set up wealth management firms, currency brokerages and pension management companies, the committee said.

Beijing has long promised to further open up its economy to foreign business participation and investment but has generally dragged its feet in implementing the moves.

In November, Beijing made an exception for two European insurers, allowing Germany's Allianz to launch a 100 percent foreign-owned subsidiary, and France's Axa to take control of its joint venture.

And in December, China's securities regulator authorized Swiss bank UBS to take a controlling stake in its local business.

source: news.abs-cbn.com

China's yuan joins elite club of IMF reserve currencies

China's yuan joins the International Monetary Fund's basket of reserve currencies on Saturday in a milestone for the government's campaign for recognition as a global economic power.

The yuan joins the U.S. dollar, the euro, the yen and British pound in the IMF's special drawing rights (SDR) basket, which determines currencies that countries can receive as part of IMF loans. It marks the first time a new currency has been added since the euro was launched in 1999.

The IMF is adding the yuan, also known as the renminbi, or "people's money", on the same day that the Communist Party celebrates the founding of the People's Republic of China in 1949.

"The inclusion into the SDR is a milestone in the internationalisation of the renminbi, and is an affirmation of the success of China's economic development and results of the reform and opening up of the financial sector," the People's Bank of China said in a statement.

China will use this opportunity to further deepen economic reforms and open up the sector to promote global growth, the central bank added.

The IMF announced last year that it would add the yuan to the basket, so actual inclusion is not expected to impact financial markets. But it puts Beijing's often opaque economic and foreign exchange policy in the international spotlight as some central banks add yuan assets to their official reserves.

Critics argue that the move is largely symbolic and the yuan does not fully meet IMF reserve currency criteria of being freely usable, or widely used to settle trade or widely traded in financial markets. U.S. Republican presidential nominee Donald Trump has said he will formally label China a currency manipulator if he wins November's election.

China stunned investors by devaluing the currency last year and the yuan has since weakened to near six-year lows, adding to worries about already feeble global growth.

Some China watchers also fear that Beijing's commitment to further market opening and financial sector reforms will fade after its diplomatic success, despite repeated reassurances from Beijing it will continue with the process.

U.S. Treasury Secretary Jack Lew said on Thursday the yuan was "quite a ways" from true global reserve currency status. The new IMF status recognises the "enormous" change in China in the last 10 years that had made the yuan more open, but Beijing still had work to do to make its currency and its economy more market-driven, he said.

"Being part of the SDR basket at the IMF is quite a ways away from being a global reserve currency," he said.

Capital Economics said inclusion of the currency in the IMF's SDR basket will have minimal impact on foreign demand for yuan assets, so "offers little support" for the currency.

"If anything, the risk is that official intervention to keep the renminbi stable ahead of its inclusion will subsequently be paired back, allowing for renewed deprecation," it said in a research note.

The IMF on Friday fixed the relative amounts of the five currencies in the basket for five years, based on their average exchange rates over the past three months. (Reporting by Nathaniel Taplin; Additional reporting by Ben Blanchard; Editing by Neil Fullick)

source: www.abs-cbnnews.com

Central bank says may increase holdings of Chinese yuan assets

The Philippine central bank on Wednesday said it may increase its holdings of Chinese yuan assets to diversify its sources of foreign exchange reserves after the International Monetary Fund (IMF) added the renminbi to its reserves basket.

Policymakers may also consider purchasing more yuan bonds, including those of longer tenors, as they become available, Bangko Sentral ng Pilipinas Governor Amando Tetangco told Reuters in a mobile phone message.

On Monday, the IMF admitted China's yuan, also called the renminbi, into its benchmark currency basket, in a victory for Beijing's campaign for recognition as a global economic power.

source: www.abs-cbnnews.com

IMF gives China's currency prized reserve asset status

WASHINGTON - The International Monetary Fund admitted China's yuan into its benchmark currency basket on Monday, in a victory for Beijing's campaign for recognition as a global economic power.

The decision to add the yuan, also known as the renminbi, to the Special Drawing Rights (SDR) basket alongside the dollar, euro, pound sterling and yen, is an important milestone in China's integration into global finances and a nod to the progress it has made with reforms.

To meet the IMF's criteria, Beijing has undertaken a flurry of reforms in recent months, including better access for foreigners to Chinese currency markets, more frequent debt issuance and expanded yuan trading hours.

IMF chief Christine Lagarde, who along with in-house experts had previously given her support for the inclusion, made it clear she did not expect Beijing to stop there.

"The renminbi's inclusion in the SDR is a clear indication of the reforms that have been implemented and will continue to be implemented," she told reporters.

The People's Bank of China said the move, which was backed by countries including the United States, Britain and Japan, showed the international community expected China to play a bigger role in the world economy.

"Going forward, China will continue to deepen and accelerate economic reforms and financial opening up, and contribute to promoting world economic growth, safeguarding financial stability and improving global economic governance," it said in a statement.

The PBOC's vice governor Yi Gang said he expected the inclusion would make the yuan more stable and there was no basis for it to devalue further, as some traders had expected.

"LANDMARK RECOGNITION"

An IMF official said it was not IMF policy to disclose board voting records, but a person familiar with the IMF deliberations said approval had been unanimous.

The yuan will have a 10.92 percent share, in line with expectations, after a review of the weightings formula for the SDR that also cut the euro's share by more than 6 percentage points.

An editorial in China's official Xinhua news agency said the decision was a "landmark recognition" of China's increased role in the global economy.

"The Chinese yuan clearly deserves a place in that grouping. China is the world's second-biggest economy and top trader, and its currency is liquid and stable enough to serve as a store of value," it added.

To be included in the SDR basket, the yuan had to meet the criteria to be "freely usable", or widely used to make international payments and widely traded in foreign exchange markets, a yardstick it missed at the last review in 2010.

The yuan's inclusion from October 2016 is largely symbolic, with few immediate implications for financial markets. But it is the first time an additional currency has been added to the SDR basket, which determines which currencies countries can receive as part of IMF loans.

"Ultimately China would like to see, as a number of countries would, the dollar end its reign as the global reserve currency," said Malcolm Polley, chief investment officer at Stewart Capital Advisors.

"That won't happen until there is another currency that from a geopolitical standpoint is as secure as the dollar."

EURO MAKES ROOM

The new SDR formula gives more weight to financial variables and less to exports, reflecting long-standing criticism of the methodology but also cutting the euro's share to 30.93 percent, from 37.4 percent.

The yuan will come in with a higher weight than sterling and yen, which will drop to 8.09 percent and 8.33 percent respectively, while the dollar remains broadly unchanged at 41.73 percent.

The addition is likely to fuel demand for China's currency and for renminbi-denominated assets as central banks and foreign fund managers adjust their portfolios to reflect the yuan's new status.

Moody's Investors Service said it would give a confidence boost for investors in yuan assets and it expected more yuan-denominated bonds from non-Chinese issuers in China, and an increase in Beijing's quotas for cross-border investment channels.

But analysts said investors would nevertheless remain cautious as long as China did not fully liberalize capital controls or allow the currency to float freely.

"'Freely usable' meant freely usable to reserve managers and available to official institutions," said Steven Englander, head of G10 foreign exchange strategy at Citi in New York.

"But if you look at the normal definition of liquidity, the point is not that just you and your mates can use it but that the whole world can use it."

The IMF said China's comparatively higher interest rates would likely increase the SDR interest rate, potentially pushing up the cost of IMF loans for some borrowers. (Reporting by Krista Hughes; Additional reporting by Jason Lange and Howard Schneider in Washington and Dion Rabouin, Daniel Bases and Sam Forgione in New York; Editing by Alan Crosby and Will Waterman)

source: www.abs-cbnnews.com