F REIGN TRADE - 中国国际贸易促进委员会

CNH deposits have always been
the toughest to predict because of
the many moving parts involved.
Offshore liquidity conditions were
tightening for most of 2012. At one
stage, CNH deposits in Hong Kong
were down 13% from their 2011
peak, although the fall was cushioned
as banks raised time-deposit rates to
near or above 3% to attract deposits.
The start of 2013 has seen a sharp
improvement in local CNH liquidity
conditions; this has caused the overnight
deposit rate to collapse to 0.7%
from 2.5% as of December 2012, and
1Y CCS to fall to 2.1% from 2.6%
(Figure 4). Hong Kong commercial
banks CNH time-deposit rates were
generally down by around 10-30bps
across most tenors in the first week of
January.
So what has changed? For
one, monetary conditions in China’s
onshore market eased as a result of
frequent PBoC injections, as well as
a resumption of net capital inflows in
November-December. China’s overnight
interbank repo rate fell to 2% in
January from 2.3-2.5% in December.
Offshore liquidity has also been
boosted by the November return
of the CNH premium over CNY,
which became stickier in December.
A stronger CNH spot rate over
CNY makes foreign exporters more
Figure 4: A bout of flush liquidity at the start of 2013
O/N Renminbi HIBOR and 1Y CCS collapsed to 0.7% and 1.9% (%)
Sources: Bloomberg, Standard Chartered Research
willing to receive Renminbi directly,
and foreign importers will convert
at the CNY spot rate (rather than
CNH spot) via the offshore clearing
bank – i.e., their payments to onshore
will not reduce CNH liquidity
in this case. Chinese importers
should also have a greater incentive
to make cross-border (trade-related)
Renminbi transfers to their offshore
purchasing arms before doing USD
conversion. Such trade settlement
practices may prevent a substantial
widening of the CNH premium,
but we believe a small premium on
the back of mild CNY appreciation
expectations and China’s economic
recovery is sustainable for most of
2013. Chances are that the ratio of
China’s imports to exports settled
in Renminbi will finally start to stabilise
around the Q3-2012 level of
1.2:1:0, after falling consistently since
the launch of the Renminbi trade
settlement pilot scheme in 2009.
Notwithstanding the risk of a
small setback in February – onshore
liquidity typically tightens before the
Lunar New Year (10 February this
year), and redemption of CNH CDs
is particularly strong in February – we
still expect bigger Renminbi inflows
via trade settlement to the offshore
market in 2013 than in 2012. This
will help to balance Renminbi outflows
to the mainland under the
capital account, which are likely to
remain large.
In 2012, combined capital
account outflows from Renminbi
foreign direct investment (FDI),
overseas direct investment (ODI)
and R-QFII drained Hong
Kong’s CNH liquidity pool by
some CNY 260bn, or 45% of
Hong Kong CNH deposits (which
stood at CNY 571bn as of November).
We expect at least CNY
300bn to flow back to mainland
China in 2013, driven by Beijing’s
recent initiatives on cross-border
capital activities, Renminbi FDI,
R-QFII (for which the quota was
significantly expanded recently),
and the Qianhai cross-border
loan programme.
To balance these CNH outflows,
Beijing is under pressure to
allow more capital account CNY
outf lows from China. News of
QDII2, a pilot programme allowing
mainland individuals to invest
overseas utilising onshore funding,
is encouraging, as the same
framework could eventually be
used for a Renminbi-denominated
programme (perhaps R-QDII2).
According to the People’s Bank
of China statement on its annual
work meeting, it has been “proactively”
preparing for the QDII2
scheme, which is likely to be
launched this year. Overseas direct
investment flows will also build in
2013, and a growing share of them
will be denominated in CNY.
Overall, though, we believe rising
CNY inflows to Hong Kong under
the current account will more than
offset rising outflows under the
capital account, resulting in more
liquidity.
CNH deposits of at least
CNY 700bn in Hong Kong by
end-2013 appear reasonable to us
for now; we see a strong case for
CNY 750-800bn, if there is further
capital account liberalisation.
We also look for the RGI to rise
more than 50% this year.
(Authors: from Standard
Chartered Bank)
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