Tianjin continues its transformation to become a Free Trade Zone

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1 July Newsletter 23 rd Issue HIGHLIGHTS OF THIS ISSUE Regulatory News: PBoC released 1 st report on RMB internationalisation PBoC cut both interest rates and Reserve Requirement Ratio Onshore repo business is available for offshore banks Loan-to-deposit ratio in China will be removed PBoC kicked off the Large Denomination Certificate of Deposit program The pilot consumer credit service to be expanded Use of pension funds will increase liquidity in China stock markets Free Trade Zone News: Tianjin continues its transformation to become a Free Trade Zone Other News: China will have 26.06% of the voting rights in AIIB Vanguard includes A shares to its emerging market fund PBoC lowered its GDP forecast Mutual recognition of funds will be launched in July 2015 Shanghai Gold Exchange intends to set up RMB-denominated gold fix Shenzhen-Hong Kong Connect to be launched in September Dollar / yuan currency futures may start trading on Taiwan Futures Exchange RMB trading intensifies between China and UK Free Trade Agreement formally signed between China and Australia Free trade deal signed between China and South Korea Hungary was granted RMB clearing bank and RQFII quota RMB Competence Centre Page 1

2 REGULATORY NEWS PBoC released 1 st report on RMB internationalisation PBoC released the first RMB internationalisation report on June 11 th. EXECUTIVE SUMMARY With the further expansion of offshore RMB centres and deeper cooperation in RMB cross-border business, RMB internationalisation continues to enjoy a rapid development. According to SWIFT statistics, in 2014, 23.6% of the cross-border transactions between China and other countries were settled in RMB. By the end of 2014, RMB ranked #2, #5 and #6 for trade financing, payments and foreign exchange dealing respectively. The scale of the use of RMB in cross-border trade and direct investment has increased steadily. In 2014, the amount settled in RMB for current account items reached 6.55 trillion yuan, a year-onyear growth of 41.6%; the amount settled in RMB for Outward Direct Investment (ODI) achieved billion yuan, a year-on-year increase of 117.9%; the amount settled in RMB for Foreign Direct Investment (FDI) totalled 862 billion yuan, a year-on-year growth of 92.4%. RMB has replaced USD as the accounting currency of the Chinese foreign government departments for statistics. The use of RMB in international trade expands gradually. At the end of 2014, the non-resident RMB deposit balance in onshore banks was 2,283 billion yuan, the RMB deposit balance for major offshore markets was approximately 1,986.7 billion yuan and the outstanding amount for RMB international bonds was billion yuan. According to the statistics, at the end of April 2015, RMB assets held by offshore central banks or monetary authorities aggregated billion yuan. Significant progress has been achieved in the RMB convertibility under capital account. Due to the successful launch of Shanghai-Hong Kong Stock Connect, the facilitated procedure for offshore institutions to issue RMB bonds onshore and the further simplified foreign exchange administration on capital account items in 2014, RMB capital account is not far from full convertibility. RMB international cooperation has gained remarkable achievements. By the end of May 2015, 32 countries and regional central banks or monetary authorities had signed bilateral currency swap agreements with PBoC. The total size of the agreements had reached approximately 3.1 trillion yuan, substantially increasing its practical use in the cross-border trade finance. Offshore RMB clearing centres were established in 15 countries and regions covering Southeast Asia, Western Europe, the Middle East, North America, South America and Oceania, further supporting RMB to become a regional currency for pricing and settlement. Looking ahead to 2015, the overall domestic and international environment is conducive to the RMB internationalisation. The deepening of China's reform and opening up of capital account, and the implementation of initiatives such as "One Belt One Road" will further boost market demand, pushing forward the full convertibility of RMB under capital account and the sustainable development in the international use of RMB. Source: PBoC, BNP Paribas RMB Competence Centre Page 2

3 PBoC cut both interest rates and Reserve Requirement Ratio (RRR) PBoC announced on June 27th to cut the RRR by 0.5 percentage point for banks whose loans to agricultural sectors and Small and Medium Enterprises (SMEs) satisfy the required amount set by PBoC. The RRR for financial companies was cut by 3 percentage points. At the same time, PBoC decided to lower the 1-year benchmarks of deposit interest rate and loan interest rate by 0.25 percentage point to 2% and 4.85% respectively. Other tenors of interest rates were also lowered accordingly. The central bank has rarely cut both interest rates and the reserve-requirement ratio on the same day. The last time it did so was in October 2008, at the height of the global financial crisis. The cut of both interest rates and RRR took effect from June 28th and will release around CNY 450 billion liquidity to the market. After the adjustment, the new benchmarks of major interest rates are: Interest rates (%) Deposits 1. Demand deposit Time deposits 3 M M Y Y Y 3.25 Loans 1 Y 4.85 (1Y, 5Y] 5.25 > 5 Y 5.40 Loans of Housing Provident Fund 5 Y 3.00 > 5 Y 3.50 Source: PBoC; BNP Paribas Onshore repo business is available for offshore banks PBoC announced on Wednesday June 3rd 2015 that offshore RMB participating banks and RMB clearing banks can engage in the bond repurchase agreement business in onshore interbank market. The move aims to further open up the domestic interbank bond market, the People's Bank of China said on its website. The banks will be able to use funds obtained through such business in offshore yuan operations, but the outstanding amount of financing via repos should not exceed the amount of bonds they hold, the bank said in a statement. The announcement comes as offshore yuan deposits in Hong Kong, the world's biggest offshore yuan hub, lose steam because of broader channels to repatriate offshore yuan funds. Yuan deposits in Hong Kong stood at billion yuan at the end of April, in the year's first monthly increase, although that was still off the peak of 1 trillion yuan in December. Source: BNP Paribas, Reuters RMB Competence Centre Page 3

4 Loan-to-deposit ratio in China will be removed China is to scrap the country's longstanding loan-to-deposit ratio requirement, the latest in a series of measures to reform the country's commercial banking sector and get more lending into a slowing economy. China's cabinet, the State Council, published its decision late on Wednesday June 24th 2015 as part of a draft amendment to the country's 20-year-old commercial banking law. Chinese banks at present are prohibited from lending more than 75 percent of their deposits, limiting their ability to offer loans and engage in other commercial activity. Broker China Securities Co has previously estimated that the removal of the ratio would potentially allow 16 listed banks to release up to 6.6 trillion yuan ($1.1 trillion) in extra lending. The move comes as the country's economic growth continues to slow, and as the government hastens financial reforms that have included the liberalisation of interest rates and the implementation of a deposit insurance scheme. The loan-to-deposit ratio is the biggest administrative restriction over banks. The removal of the restriction will "strengthen ability of financial institutions to lend more to the agriculture sector and small businesses", the State Council said in an online statement. As China steps up its financial reforms, its central bank has cut interest rates three times in the last seven months in a bid to lower borrowing costs, while giving banks more flexibility over how much they pay depositors, which has hit bank earnings as lenders face competitive pressure to pay more for deposits. In May, China launched a long-awaited bank deposit insurance scheme, setting the stage for full liberalisation of deposit rates, which would allow banks to compete on the basis of deposit yields, seen as a key step in letting the market, not the state, set the price of capital and risk. Even with the removal of the lending restriction, bank lending isn't expected to increase substantially as banks have become more risk-averse in a slowing economy. With credit demand weakening and banks struggling with the rising costs of deposits brought about by interest rate liberalisation, it was the "perfect time" to remove the loan-to-deposit requirement. The State Council also said it would set up a 300 billion yuan national insurance fund to invest in domestic and foreign funds that finance urban construction, regeneration and water projects as well as key projects in the "One Belt, One Road" initiative. Source: Reuters PBoC kicked off the Large Denomination Certificate of Deposit program On June 2 nd 2015, PBoC issued the guideline for Large Denomination Certificate of Deposit (CD) with immediate effect. The launch of CDs will help to improve the market-oriented interest rate formation mechanism and independent pricing ability of financial institutions in China. It also increased a channel for banks to collect deposits. Categorized as a general deposit product, CD will be covered by the deposit insurance. The highlights of the guideline are as follows: Definition Large Denomination Certificate of Deposit is the book-entry certificate of deposit denominated in CNY issued by financial institutions (with capability of collecting deposits) to the non-financial institution investors (including individuals and institutions). a banking deposit product and categorized as the general deposit. RMB Competence Centre Page 4

5 Qualification of the issuer Be a member of Self-Disciplinary Mechanism Organisation for the Pricing of Market-Oriented Interest Rate; Have internal procedure and system for the CD business. Filing Requirement The issuer should file with PBoC for the yearly plan for the issuance of CDs. Issuance channels The CD can be issued through bank network, E-banking, or the third party platform recognized by PBOC Requirements on CDs Minimum thresholds: RMB 300K for individual investors and 10 million for institutional investors. Tenor: 1M, 3M, 6M, 9M, 1Y, 18M, 2Y, 3Y and 5Y. Interest rate: market-determined interest rates that could be fixed or floating; the floating rates should be based on the SHIBOR. Means of Interest payments: a. Lump-sum payment on maturity date, or b. Interest is paid periodically while principal will be paid on maturity date. Articles for transfer, early withdrawal, redemption and the calculation mechanism for interest rate should be included in the terms of issuance. The CD can be used as pledge. A special account should be opened by the CD investor, and the investors should follow the real name policy. Information disclosure Issued through 3rd party platform: Term of issuance should be disclosed through web-site and the disclosure platform appointed by PBoC at least 1 working day before the issuance, and the issuance status should be disclosed 1 working day after the issuance. Issued through bank network or E-banking: File with PBoC within 1 working day after the issuance. Important events: The issuer should disclose any important event that could impact on the solvency of the issuer within 3 working days through web-site and the disclosure platform appointed by PBoC. Accounting The CD should have a separate accounting ledger for accounting and statistics. Source: PBoC; BNP Paribas The pilot consumer credit service to be expanded China will expand a pilot consumer credit service that offers small loans with no collateral to encourage more spending, especially from lower-income groups, amid sluggish demand. An executive meeting of the State Council presided over by Premier Li Keqiang approved on June 10 th the expansion of the program from 16 cities to the entire country, saying that consumer finance that mainly serves people with low to medium incomes will release their spending potential. RMB Competence Centre Page 5

6 The decision was made after a bigger-than-expected slide in China's imports and continued easing of the consumer price index in May, indicating further weakening of domestic demand in the world's second-largest economy. Private capital, domestic and foreign banking institutions and Internet companies are all being encouraged to set up consumer credit companies, and the approvals procedure of the companies will be streamlined, according to a statement released after the meeting. The administrative power to approve consumer credit companies, which was previously controlled by the China Banking Regulatory Commission, the nation's top banking watchdog, will be delegated to provincial governments. According to rules set by the CBRC, consumer finance refers to short-term loans for personal purchases of durable goods or services such as home decorations, healthcare and education. China launched pilot programs to approve four consumer finance companies in 2010: the Bank of Beijing Consumer Finance in Beijing, BOC Consumer Finance in Shanghai, Jincheng Consumer Finance in Chengdu and Home Credit in Tianjin. The program was expanded to 16 cities in The current regulations, revised by the CBRC in 2013, have rigid requirements for consumer finance lenders, including interbank borrowing no higher than 100 percent of the total capital. The company had lent 23 billion yuan ($3.7 billion) by May. But experts doubt whether the new policies can give a significant boost to consumption, since the use of consumer credit loans is still being limited. Wang Yajie, an official from the CBRC, said in an article published last year that the service provided by consumer credit companies highly overlaps with what customers can get from a credit card, and the interest rate of a consumer loan is usually much higher than that of a credit card. Apart from consumer finance, Wednesday's meeting also issued initiatives to facilitate crossborder e-commerce with simplified customs procedures. According to the Ministry of Commerce, more than 200,000 enterprises in the country offer cross-border e-commerce service through various platforms. China E-Commerce Research Center estimated that trading volume of crossborder e-commerce will hit 6.5 trillion yuan by Source: China Daily Use of pension funds will increase liquidity in China stock markets China will allow its basic endowment pension fund to invest in stock markets. The fund also will be allowed to invest in domestic bonds, stock funds, private equities, stock-index futures and treasury futures, according to the draft. The proportion of investment in stocks, funds and stockrelated pension products will be capped at 30 percent of the pension net value, according to the proposed rules posted Monday June 29 th The access of the pension fund as a long-term investor will remarkably increase liquidity supply and will benefit the sustainable, healthy development of the stock market. The Chinese market will be stabilized by the policy. Feedback on the draft rules can be given until July 13, according to the statement. The basic pension outstanding value was 3.59 trillion yuan ($578 billion) at the end of last year. According to the draft rule, short positions held by the basic endowment fund in stock-index futures and treasury-bond futures exceed the book value of the targeted stock indexes or treasury bonds. Money can also be used in equity investments for restructuring companies or in public listings of major state-owned companies, but the money can only be invested domestically. Source: Bloomberg RMB Competence Centre Page 6

7 FREE TRADE ZONE NEWS Tianjin continues its transformation to become a Free Trade Zone Lower costs, better international integration and wider investment opportunities - the draw that's wooing new firms to the Binhai Central Business District. This innovative platform means the financial services sector at one of China's next-generation Free Trade Zones is seeing soaring activity. The CBD has an unprecedented historic responsibility to provide a platform enabling more financial innovation. Its key mission is to facilitate investment and trading and further internationalize financial services. Binhai CBD is easing restrictions on foreign investors in areas such as banking, leasing, consumer finance, asset management and insurance. It is promoting the two-way cross-border flow of the Chinese Yuan, encouraging foreign investors to set up RMB-denominated private equity and venture capital funds. It is also experimenting with free currency convertibility, allowing FTZ-residents to invest abroad and enabling leasing companies to collect revenue in foreign currency. As a result, the financial services sector accounted for 6.4 billion Yuan of industrial output in 2014, with year-on-year growth of 32%, and generated 85% of the CBD's total industrial output. More than 600 of the CBD's modern services sector tenants are in the financial services sector. Tianjin FTZ will continue to pilot anything that is required by companies, approved by the market, and in accordance with the developmental trend of international finance. To underline this ambition, in June, Binhai CBD hosted a Financial Forum on Factoring Business Promotion in Yujiapu, covering topics such as refinancing, asset transfer, risk management and regulation. The Binhai CBD is at the heart of Tianjin's FTZ, designed to attract capital and talent, and stimulate economic activity and growth through the Tianjin-Hebei-Beijing area and beyond. It is also at a strategic point in the "One Road, One Belt" initiative, sitting at the juncture of the Silk Road corridor and the Maritime Belt. Source: Global Newswire RMB Competence Centre Page 7

8 OTHER NEWS China China will have 26.06% of the voting rights in AIIB China will hold a percent stake in the Asian Infrastructure Investment Bank (AIIB), the Finance Ministry said on Monday, making Beijing the largest shareholder in a multilateral institution that will project the country's growing soft power. China will have percent of the voting rights in the bank, a Chinese-led development bank that will rival institutions such as the World Bank and the Asian Development Bank. Countries defined as "within the region" will hold a 75 percent stake in the bank. Other big prospective contributors among those listed as Asia-Pacific members are India at $8.36 billion, Fifty countries signed the agreement, the ministry said, as the remaining seven - Denmark, Kuwait, Malaysia, Philippines, Holland and South Africa and Thailand - had not yet won domestic approval. India will have the second-largest share in the bank, followed by Russia, Germany and South Korea based on their capital subscriptions, according to the statement. The AIIB's authorized capital stock would be $100 billion, which would be divided into shares that have a value of $100,000. The ministry added that the initial stakes and voting rights of China and other founding members would be gradually diluted as other members joined. After getting approval from the majority of the board, the AIIB can increase its legal share capital and lower the share of countries within the region, but not lower than 70 percent. Source: Wall Street Journal Vanguard includes A shares to its emerging market fund Vanguard, the largest fund provider, has chosen to add Chinese stocks listed on the mainland to its flagship emerging market fund, just a week ahead of a key decision on the issue from index compiler MSCI. The move to add domestic Chinese equities known as A shares to the fund will give Vanguard investors complete exposure to a key emerging economy and the second-largest stock market in the world by market the company said in a statement. After the change, main emerging market index exchange traded fund (ETF), which has around $50bn in assets under management, will give Shanghai and Shenzhen-listed stocks a 5.6 per cent weighting. The formula is based on a new index compiled by FTSE Russell, which is designed to give investors the option of switching their exposure to China at their own pace ahead of a formal review in September this year. markets, though still restricted, have opened up considerably to foreign participation in the past year, most notably with the launch of the Shanghai-Hong Kong Stock Connect. Since the November debut of the cross-border trading platform global investors have added around $24bn of exposure to Chinese stocks. However, most large fund managers continue to access Chinese markets using the twin quota system controlled by the mainland regulator. Vanguard Australia recently received a license to buy onshore assets through the renminbi qualified foreign institutional investor (RQFII) scheme. Some investors have voiced concern at the prospect of being forced to buy Chinese shares should MSCI choose to alter its index weightings. MSCI estimates that around $20bn of fresh capital would flow into China if it gives inclusion the green light. Source: Financial Times RMB Competence Centre Page 8

9 PBoC lowered its GDP forecast The People's Bank of China has lowered its full-year GDP growth forecast to 7 percent from the previous estimate of 7.1 percent issued in December as first-half economic momentum turned out to be weaker than expected. The PBOC also slashed its forecast for consumer price inflation to 1.4 percent from 2.2 percent previously. And it cut a number of other key forecasts: Exports: To 2.5 percent growth from 6.9 percent previously. Imports: To a 4.2 percent contraction from growth of 5.1 percent. Fixed-asset investment: To a rise of 12.6 percent from 12.8 percent previously. Retail sales: To growth of 10.7 percent from 12.2 percent. Overall economic conditions are worsening because of a faster-than-expected slowdown of exports and real estate investment, with the lowest indicators since the global financial crisis in Recently, the nonperforming loan ratio has been rising and commercial banks have become more cautious about lending, especially to producers of coal, steel, construction materials and companies involved in export-oriented manufacturing and real estate. The PBOC did, however, forecast that the positive effects of already-announced policies will become evident starting in the third quarter. Recoveries in the United States and European economies are likely to support China's export rebound. In addition, the rise of housing prices since April will accelerate property investment Room is also available for a further loosening of monetary policy should macroeconomic conditions continue to deteriorate, given that real lending rates and the reserve requirement ratio remain high. Compared with other emerging markets, China has a more stable economic foundation, so the expected move by the US Federal Reserve to raise interest rates will have merely a limited impact on the country's financial system. However, capital outflows and currency depreciation in other emerging economies may cut China's exports. Source: China Daily Mutual recognition of funds will be launched in July 2015 Hong Kong and mainland fund managers are gearing up for the mutual recognition of funds scheme set to be launched next month. Market response may be muted, with more mainland funds likely to be introduced to Hong Kong investors than local funds being promoted in the mainland. This initial scenario may mimic the Shanghai-Hong Kong Stock Connect when it was launched last October. While strategies differ, all asset managers have one goal: to lure investors and maximize the total cross border fund sales quota of 600 billion yuan (HK$ billion). At the initial pilot stage, only equity, bond or mixed assets funds, index funds and exchange-traded funds will be available. Participating funds must be domiciled in Hong Kong or China for more than a year and they should have assets under management of at least 200 million yuan (HK$ million). About 100 local funds and 850 from the mainland are qualified under this criterion. All mainland funds need to find a local agent and trustee to meet the requirements. This is not a problem for those who already have sub-offices in Hong Kong. In contrast, Hong Kong companies do not enjoy much advantages when selling funds in the mainland, he added. Many local fund managers are trying to offer to the mainland funds with a Hong Kong or Asia Pacific focus. These equities have a large discount of more than 30 percent compared to A-shares, making them a good investment option. RMB Competence Centre Page 9

10 Some details in the mutual recognition of funds scheme have yet to be clarified, such as the method of counting the quota and the redemption fees for mainland and Hong Kong are set differently, which might lead to confusion. But all agree on one point: the pilot program will undoubtedly be beneficial for the local fund industry in the long run. Source: The Standard Shanghai Gold Exchange intends to set up RMB-denominated gold fix China plans to launch a yuan-denominated gold fix by the end of the year via the Shanghai Gold Exchange (SGE), in a move aimed at giving the world's biggest producer and leading consumer of bullion more influence over pricing. Given its leading role in gold, China feels it is entitled to be a price-setter for bullion and is asserting itself at a time when the global benchmark, the century-old London fix, is under scrutiny for alleged price-manipulation. If the yuan fix takes off, China could compel local buyers and foreign suppliers to pay the domestic yuan price, making the dollar-denominated London fix less relevant in the world's biggest bullion market. However, given the yuan is not fully convertible, the two fixes could exist side by side globally. The SGE has already submitted details of the fixing process, and rules and regulations for participants, to the PBOC a few weeks ago. Once the SGE gets PBOC approval, it will work to sign up Chinese and foreign banks for the fix. Around 15 Chinese banks are expected to participate initially. The exchange has held talks with foreign banks regarding the fix but they could be reluctant to participate at a time when U.S. and European regulators are scrutinising benchmarks across asset classes following the manipulation of the London interbank offered rate, or Libor. Source: Reuters Hong Kong Shenzhen-Hong Kong Connect to be launched in September Shenzhen-Hong Kong Stock Connect will be launched in the second half of the year, said Chairman of the HKEx Chow Chung-Kong, denying any delay. Preparation work for the link will be finished by July and the link may be launched three to four months after an official announcement. He emphasized that the scheme is progressing as planned and there are no changes or new problems facing the scheme. Only 500 to 700 companies among the 1,714 companies listed in Shenzhen may be covered in the initial stage. The companies covered should have market capitalization of more than 20 billion yuan (HK$24.9 billion). The daily quota for Southbound, the channel through which mainland investors buy Hong Kong stocks, will be 40 billion yuan. Source: The Standard Hong Kong reduces profit tax by 50% for corporate treasury business Hong regulators have released plans to create explicit definitions of treasury centre services and activities that qualify for tax cuts. In a bid to offer treasury centres in Hong Kong lower tax rates on profits derived from transactions, Hong financial chiefs have come up with proposed definitions of corporate treasury. RMB Competence Centre Page 10

11 According to Hong Kong Monetary Authority (HKMA) estimates, eligible treasury centres under the proposed new regime will be subject to lower tax rates than are currently available in Singapore. As reported by CT in February, Hong Kong financial secretary John Tsang Chun-wah outlined tax reforms to attract more companies to set up treasury centres in the city. The headline announcement was that he would profits tax for specified treasury activities by 50%. Qualifying corporate treasury services: The management of the cash and liquidity position including cash forecasting of the corporate group, and provision of related advice; The process of payments to vendors or suppliers of the corporate group; The services in relation to the provision of guarantees, performance bonds, standby letters of credit and services relating to remittances to and on behalf of the corporate group; Providing corporate financing advisory services, including activities supporting the raising of capital, either by way of debt or equity; or the provision of services in relation to the raising of capital, either by way of debt or equity; or the provision of services in relation to the raising of capital, for and on behalf of the corporate group; Providing advice and services in relation to the management of interest rate risk, foreign exchange risk, liquidity risk and credit risk; and Providing business planning and co-ordination, including economic or investment research and analysis in connection with any of the above activity. Qualifying corporate treasury transactions: Transactions in relation to the provision of guarantees, performance bonds, standby letters of credit or similar risk mitigation instruments in respect of borrowing by associated corporations; Investment in deposits, certificates of deposit and shares of surplus cash for liquidity management; Transactions in the contracts for difference, foreign exchange contracts, futures contracts, options contracts for hedging interest rate risk, foreign exchange risk, liquidity risk or credit risk; and Factoring and forfaiting transactions. Interest deduction rules in the Inland Revenue Ordnance (IRO) have been less for multinational companies when engaging in intercompany lending and lending of funds through Hong Kong.. To ensure that profits are taxed at 8.25%, the three Hong Kong regulators concerned also proposed that treasury centres need to ensure they continue to provide these services during the course of their operations, but acknowledged they would likely need to provide separate audit and tax filings. This entity-based approach will be tidier in terms of implementation, and certain group companies may need to adjust their corporate structure if they want to enjoy the concession. Source: Corporate Treasurer Hong Kong firms allowed to trade London listed stocks and fixed-income products London Stock Exchange plc on June 15th 2015 announces it has received regulatory approval from Hong Securities and Futures Commission to allow Hong Kong firms to become Members of London Stock Exchange. Membership allows trading firms to connect directly to most liquid and international order book, and to trade central counterparty cleared securities including some of the largest and well known companies. In addition, the same connection provides access to London Stock Exchange Derivatives Market which provides trading in derivative contracts in UK securities and Global Depositary Receipts, according to London Stock Exchange. RMB Competence Centre Page 11

12 The agreement also comes on the day London Stock Exchange Group hosts its second annual Greater China Capital Markets conference. Since 1 January 2014, the Group has built considerably on its relationship with Greater China: 7 new Chinese companies have been admitted to London Stock Exchange; 10 new RMB bonds have been issued in London and six new RQFII ETFs have listed on the market, including the first ETF in Europe denominated in RMB. Source: The Financial Taiwan Dollar / yuan currency futures expected to start trading on Taiwan Futures Exchange Taiwan Futures Exchange proposes to use yuan foreign exchange rates in Hong Kong (CNH) and Taiwan (CNT) to settle U.S. dollar/yuan currency futures contracts. Once regulators give their approval, the exchange expects to begin trading dollar/yuan currency futures on July 20. The contract size will be $100,000 for institutional investors, and the yuan exchange rate in Hong Kong will be used for settlement. For retail investors the contract size is set at $20,000, and the yuan exchange rate in Taiwan will be used for settlement. Daily trading volatility will be capped at up or down 7 percent. The Hong Kong Stock Exchange and U.S. exchange operator CME Group launched the first dollar/yuan currency futures in 2012, followed by similar contracts provided in Singapore and Brazil. Though a latecomer in developing offshore yuan business, Taiwan's yuan deposits and bond issuances have risen steadily since a yuan clearing bank began operations there in UK RMB trading intensifies between China and UK Source: Reuters Chinese renminbi trade volumes in London more than doubled last year, according to figures from the City of London Corporation on Friday June 26 th 2015, in a further sign of deepening financial links between Britain and China. Overall renminbi trading volumes rose 143 percent compared with 2013 as average daily volumes reached $61.5 billion, said the City of London, the municipal government of London's Square Mile financial district. Spot trading volumes stood at $18.4 billion dollars per day in 2014, up more than three times compared with the previous year. London has been keen to attract Chinese banks and encourage offshore trade in the yuan to bolster its position as the world's main centre for foreign exchange trading. While London is dominant in global foreign exchange trading, Hong Kong is currently the biggest offshore renminbi centre. Daily turnover through its clearing and settlement platform exceeded 880 billion yuan ($142 billion) in December Source: Reuters Australia Free Trade Agreement formally signed between China and Australia China and Australia on Wednesday June 17 signed a trade agreement that is set to increase market access for Australian beef and wine exporters while boosting Chinese carmakers and electronics producers who wish to sell their goods to Australians. RMB Competence Centre Page 12

13 One flashpoint is the inclusion of an investor-state dispute settlement (ISDS) clause, which grants foreign companies the right to sue governments for breaching commitments in such agreements. The Australian union movement has also raised concerns about the access to be granted to Chinese citizens under labour market provisions. Both governments concluded negotiations on the free trade agreement (FTA) in 2014, but it was formally signed in Canberra on Wednesday by trade minister, Andrew Robb, and commerce minister, Gao Hucheng. It is a high-quality and balanced that is a milestone in relations between Australia and China. It is the highest degree of liberalisation of all the FTAs China has so far signed with any economy. The agreement would give each nation access to each and pointed to the reduction in tariffs imposed on trade. It removes barriers to Australian agricultural exports across a range of products, including beef, dairy, lamb, wine, horticulture and seafood. It means duty-free entry for 99.9% of resources, energy and manufacturing exports within four years. But about so much more than just exporting more and reducing tariffs. Australian services providers, financial, education, health and aged care will have new access to services sector, a sector that is already the largest contributor to GDP and is set to drive economic growth in coming years. For China, this agreement liberalises the screening threshold for Chinese private sector investment in Australia and it puts Chinese businesses in the same position as those of other major trading partners. And of course it means that Australian consumers will pay less for cars, for clothes, for electronics and other goods imported from China. The full text of the agreement will be subject to an inquiry by joint standing committee on treaties, paving the way for parliament to consider amendments to relevant legislation. South Korea Free trade deal signed between China and South Korea Source: The Guardian South Korea and China signed a free trade deal on Monday June 1 st 2015 that will remove tariffs on more than 90 percent of goods over two decades. The agreement covers 22 areas including finance and online commerce but won't include rice and autos. South Korea's trade ministry said the deal would boost the country's gross domestic product by nearly 1 percentage point and create more than 50,000 jobs in the decade after its implementation. The agreement will give South Korea's small- and medium-sized companies wider access to the Chinese market while boosting China's investment in South Korea. It was the first time for China to include finance, telecommunications and e-commerce industries in a free trade deal. South Korea's rice industry is not part of the pact but trade in 70 percent of agricultural goods will be liberalized. Source: AP RMB Competence Centre Page 13

14 Hungary Hungary was granted RMB clearing bank and RQFII quota Hungary's central bank said it had signed an agreement on Saturday with the People's Bank of China to allow Chinese currency clearing in Hungary. Hungary follows a number of countries that have appointed a clearing bank to enable trade with China to be settled in China's yuan currency, also known as the renminbi, which is not fully convertible. The Chinese central bank will designate a bank to launch yuan clearing in Hungary, the National Bank of Hungary (NBH) said in a statement. It will also expand its scheme that allows investment in Chinese shares and other securities. People's Bank of China also decided to extend the pilot scheme of RMB Qualified Foreign Institutional Investors (RQFII) to Hungary with a total investment quota of 50 billion yuan," the National Bank of Hungary said. Under the memorandum of understanding, the Hungarian central bank will also invest in China's interbank bond market. The investment in China's bond market will help the NBH diversify its investment portfolio and strengthen liquidity management. The agreement aimed to support the use of the yuan in cross-border transactions by companies and financial institutions, and facilitate bilateral trade. Source: Asiaone RMB Competence Centre Page 14

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