Regional Analysis China
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The RMB has taken steps on its internationalization march. This ppt reviews RMB's expanding role in global trade and businesses in the past decade, strategies to increase overseas usage of RMB and "811" devaluation and its implication. The next breakthrough will be the opening-up of the domestic bond market.
Bank assets growth picked up to 7.7% in Q3 2019 supported by a higher loan growth rate. Assets quality worsened and diverged among big and smaller banks. Capital adequacy ratio dropped on faster growth in risk-weighted assets, small banks are facing deteriorating conditions in funding through NCDs and bond market.
China’s central bank announced the elimination of its previous benchmark lending rate as monetary policy rate. Moreover, they made a market-driven Loan Prime Rate (LPR) as the reference rate for banks to price their financial products. It signals the transformation of “dual-track” system to the new “single-track” system.
The Q3 GDP growth slowed to 6% y/y, the lowest growth rate for the past three decades. The prospect of China’s economy hinges on the development of trade talks with the US at the current stage. The two sides recently tried to pursue a partial agreement first and leave the thorny part of negotiation to the next phases.
A batch of August indicators announced today pointed to a significant slowdown in economic activities this summer. Together with the previously released trade and credit data, it suggests that the escalating uncertainties from the US-China trade war dampened people’s confidence and hamper economic expansion.
A batch of July economic indicators are announced today, together with the previously released trade and credit data, suggesting that the growth further decelerated amid the escalation of US-China trade war and the domestic structural obstacles such as debt overhang and financial risks.
The recent sharp depreciation of the RMB is unlikely to lead to financial turmoil like in 2015: the authorities kept the currency’s pricing mechanism intact and have accumulated valuable experience over the past few years; moreover, the PBoC still maintain a tight grip of the country’s capital account.
Last week China’s government announced its GDP figures in the second quarter as well as a batch of activities indicators in June such as industrial production, retail sales and fix-asset investment. These headline figures still look fine.