China to simplify foreign exchange rules on foreign direct investment

A bank clerk counts U.S. dollar banknotes on bundles of 100 Chinese yuan banknotes at a branch of a bank in Huaibei (Stringer China Reuters, REUTERS / April 26, 2012)

Reuters, 9:35 p.m. CDT, May 10, 2013
Article from http://www.chicagotribune.com/business/sns-rt-us-china-fx-investmentbre94a01p-20130510,0,1882063.story

SHANGHAI (Reuters) - China's foreign exchange regulator will this month simplify the rules governing foreign direct investment (FDI), the latest step towards deregulation and market reform under China's new leadership.

The State Administration of Foreign Exchange (SAFE) will abolish 24 regulations regarding foreign exchange registration, account openings, remittance, and conversions, the agency said in an announcement posted to its website on Saturday.

The move inches China closer to making its currency, the yuan, convertible under the capital account, and follows a previous round of FDI-related deregulation by SAFE in November last year.

The new rules take effect on May 13.

Premier Li Keqiang told a meeting of the State Council, China's cabinet, that the government would produce a detailed "operational plan" to achieve capital account convertibility this year, though he did not offer a timeline for convertibility.

Li also called on agencies across the government to cut red tape and cancel unnecessary administrative approvals. SAFE referred to the State Council's call for deregulation in its announcement on Sunday.

China drew $29.9 billion in foreign direct investment in the first three months of 2013, up 1.4 percent from a year earlier.

That rise put an end to persistently negative year-to-date growth since early 2012 and was mainly driven by investment from U.S. and European companies, according to Ministry of Commerce data.

(Reporting by Gabriel Wildau; Editing by Daniel Magnowski)

Reuters, 9:35 p.m. CDT, May 10, 2013
Article from http://www.chicagotribune.com/business/sns-rt-us-china-fx-investmentbre94a01p-20130510,0,1882063.story

Exchange Fund takes 43pc hit on investment income

Falling stock markets on both sides of the border splash red ink on the HKMA-managed fund's accounts in the first three months

Saturday, 04 May, 2013, 4:51am
Kanis Li
kanis.li@scmp.com
from http://www.scmp.com/business/money/market-snapshot/article/

The Exchange Fund's investment income slumped 43.5 per cent in the first quarter to HK$17.1 billion amid a slide in stock markets.

Norman Chan Tak-lam, the chief executive of the Hong Kong Monetary Authority, which manages the fund, said the drop was due to the poor performance of the mainland stock market and the fact Hong Kong's equity and foreign exchange investments had gone into the red in the period.

"The unwinding of the yen carry trade may bring a new wave of capital flow to Asia and Hong Kong, but we have not seen this trend at the moment," Chan said, declining to forecast the performance outlook for the Exchange Fund this year. "The investment environment for 2013 is very uncertain."

Chan said it was hard to predict the effect of fund flows to Hong Kong and the stock market. The authority aims to maintain a good position to cope with the uncertain investment outlook through a balanced and prudential approach, he said.

The HKMA is responsible to the financial secretary for the use and investment management of the Exchange Fund. The fund paid HK$9.3 billion to the government's fiscal reserve in the period.

Thanks to a stronger performance of stock markets in the US and Japan, Chan said the fund had a return of HK$24.9 billion in assets classified as "other stocks" in the period, offsetting the loss on Hong Kong stocks and foreign exchange of HK$1.4 billion and HK$9.8 billion, respectively, in the first quarter. Bonds provided a return of HK$2.8 billion and alternative investments gained HK$600 million.

The Hang Seng Index fell 1.5 per cent and the Shanghai Composite Index dropped 1.4 per cent in the first quarter.

"The markets were [affected] because the central government printed more money," said Raymond Yeung Yue-ting, a senior economist at ANZ Banking in Hong Kong. He questions whether the good performance of the US and Japanese stock markets is sustainable.

Yeung expects the Exchange Fund to be challenged in the second half of this year as central governments might start to tighten up quantitative easing measures.

The fund has to hold assets of high liquidity and good quality and most asset allocations are denominated in US dollars, Chan said.

The fund's primary objective, as laid down in its ordinance, is to affect the exchange value of the currency of Hong Kong either directly or indirectly. The fund may also be used to maintain the stability and integrity of Hong Kong's monetary and financial systems to help preserve the city as an international financial centre.

This article first appeared in the South China Morning Post print edition on May 03, 2013 as Exchange Fund takes 43pc hit on income

Saturday, 04 May, 2013, 4:51am
Kanis Li
kanis.li@scmp.com
from http://www.scmp.com/business/money/market-snapshot/article/

Forex Record 683 Bln Yuan Converted in January

Money supply surges as banks change more in first month of year than in all of 2012

By staff reporter Li Yuqian

From http://english.caixin.com/

(Beijing) – Money supply to the market resulting from foreign exchange being converted to yuan at banks surged in January, data from the central bank shows.

The bank uses funds outstanding for foreign exchange to estimate the amount of yuan put into the domestic market equivalent to foreign exchange taken in by all banks during the same time. Traditionally, the funds have been a major component in the country's total money supply.

In January, the figure grew by a record 683.7 billion yuan, exceeding the combined amount of the previous 12 months, which totaled 500 billion yuan.

That increased capital available in the market and helped reduce the yield of seven-day repurchase agreements by 112.4 basis points to 3.189 percent.

The second largest single-month change in the funds was 525.1 billion yuan in April 2008. The third largest was 519 billion yuan in October 2010.

Li Huiyong, chief analyst at Shenyin & Wanguo Securities, said the January surge was mainly because foreign investors channeled their investment to China in search of better returns. Looking forward, he said, there might be fluctuations in the value of the U.S. dollar, which would cause frequent cross-border capital flows. That would lead to wide fluctuations in the amount of funds outstanding for foreign exchange.

The funds would grow by 2 trillion yuan this year, Li predicted.

Expectations for continued yuan appreciation also contributed to the fund's growth in January, said E Yongjian, an analyst at Bank of Communications. The fund is unlikely to keep growing so rapidly for the rest of 2013, he said.

Everbright Bank analyst Sheng Hongqing predicted the fund to grow by around 400 billion yuan in February.

Research from China International Capital Corp., an investment bank, said the growth in funds outstanding for foreign exchange has largely reduced the likelihood for the central bank to lower banks' reserve-requirement ratio.

By staff reporter Li Yuqian

From http://english.caixin.com/