China wants gold to help drive yuan internationalisation
Big state-owned bankers busted for corruption. Over a quarter of Fortune 500 Global companies from China.
Our briefing on critical economic and financial developments in China as of Friday, 9 August, 2024.
The Chinese central bank is expected to continue increasing its gold reserves in order to abet internationalisation of the renminbi, despite a temporary pause in buying over several months.
Beijing wants to attract more foreign investors to the Chinese bond market to advance renminbi internationalisation.
China’s forex reserves post 1.06% rise as the US dollar falters.
Half of China’s major financial corruption cases this year have involved senior officials from the big state-owned banks.
Foreign trade hits a record high in 2024, while in July imports reversed the trend of lagging behind exports.
Top analysts in China all see the renminbi continuing to rise on the back of the back of more forceful macroeconomic policies from Beijing this half.
Chinese companies account for a quarter of placeholders on the Fortune Global 500.
Chinese central bank will continue buying gold to drive renminbi internationalisation
The gold reserves of the People's Bank of China (PBOC) stood at 72.8 million ounces as of the end of July, on par with the end of June, and marking the third consecutive month of no further increases.
"At present gold prices are at historic highs," said Wang Qing (王青), chief macro-analyst at Golden Credit Rating to state-owned media.
"The central bank is moderately adjusting the pace of increase, in order to help control costs."
Wang nonetheless believes that PBOC will continue to increase its gold reserves in future, as part of efforts to steadily drive the internationalisation of the renminbi.
China’s gold reserves are currently less than half the volume of bullion held at Fort Knox in the United States, which is reported to be 147.3 million.
Foreign investment in Chinese bonds driving renminbi internationalisation: Guan Tao
Guan Tao (管涛), chief economist at BOC International, has highlighted the role of the opening of the Chinese bond market in aiding the internationalisation of the renminbi.
"As the world's second largest bond market, the Chinese bond market's development has already become a major force for driving renminbi internationalisation," Guan wrote in an opinion piece on social media.
“Since 2002, the opening of the Chinese bond market has steadily advanced, and the convenience for foreign investors to participate in the bond market has continually increased."
Guan highlighted several factors in helping to improve the lustre of the Chinese bond market for foreign investors, including:
Strengthening the development of China's bond market infrastructure, including the "Bond Connect" initiative.
Accelerating the opening of the credit ratings industry and driving market-based competition to raise the quality of domestic credit ratings.
Continuing to deepen interest rate and exchange rate reforms, to better employ the fundamental role of China's treasury yield curve in pricing, and alleviate dependence upon capital controls.
The publication of the opinion piece arrived just after the Communist Party's Third Plenum reiterated Beijing's commitment to further "high-level opening" of the Chinese economy.
China's forex reserves rise 1.06% in July as greenback falters
As of the end of July, China's forex reserves stood at USD$3.2564 trillion, for an increase of $34 billion, or 1.06%, compared to the end of June, and the largest increase since the start of the year.
Xie Yaxuan (谢亚轩) from the China Merchants Bank Securities Research Centre said the increase in China's foreign reserves in July was due to two factors:
A decline in the greenback, leading to a converse rise in the price of reserve assets in US dollar terms.
Global equities and bond markets both posting robust gains.
China's foreign trade hits record high, imports outpace exports in July
China's foreign trade in goods for the month of July was 3.68 trillion yuan, for a year-on-year (YoY) rise of 6.5%, according to figures released by the General Administration of Customs.
Exports came in at 2.14 trillion yuan, for a rise of 6.5%, while imports were 1.54 trillion yuan, posting an increase of 6.6%, and reversing the trend of lagging well behind export growth.
For the period from January to July, total foreign trade in goods was 24.83 trillion yuan, rising 6.2% YoY to a new record high for the period.
Exports posted an increase of 6.7% to 14.26 trillion yuan, while imports rose 5.4% to 10.57 trillion yuan.
"China's foreign trade has seen improvement amidst stability," said senior customs official Lu Daliang. (吕大良).
"Total imports and exports have reached a record high for the period, while year-on-year growth has remained above 5% for four months straight."
Half of China's major financial corruption cases in 2024 involve big state-owned bankers
Since the start of 2024, a total of 12 senior executives or officials at the central party level in China's financial system have been placed under investigation for corruption.
According to a report from The Paper, half of these officials were senior executives from the country's big state-owned banks, including two officials from Agricultural Bank of China (ABC), two from the Industrial and Commercial Bank of China (ICBC), and two from China Construction Bank (CCB).
These officials most notably include Wu Ningfeng (吴宁锋), the former head and party secretary of ICBC's Inner Mongolia Branch; Peng Jiabin (彭家彬), former deputy head of CCB's Jiangxi province branch, and Zhang Shiqiang (张石强), former deputy head of CCB's Guangxi branch.
Three executives from China's big three policy banks have also been placed under investigation, including Wang Fa'de (王法德), the former head and party secretary of the Tianjin branch of China Export-Import Bank (Exim Bank), and Wang Xuguo (王须国), former secretary and party head of Exim Bank's Shanghai branch.
Chinese analysts all expect the renminbi to rise
Leading domestic analysts are unanimous in expecting further gains in the Chinese renminbi, pointing to expectations of a US Fed cut as well as the impacts of a rising Japanese yen.
"Since the start of July, the external environment has started to shift towards favourability for the renminbi exchange rate," said Li Liuyang (李刘阳), forex analyst with China International Capital Corporation (CICC).
"At present, the futures market has already priced in an initial rates cut from the Fed in July, and the direct impact will be for US bond yields to fall and the US dollar to decline.
"A fall in the dollar will benefit some non-US currencies including the renminbi, while declining US bond yields will cause the Sino-US interest spread to improve."
Zhou Maohua (周茂华), macro-analyst from Everbright Bank, said that the US dollar index had fallen as a result of weakening in key US economic indices as well as cooling inflation, all of which has driven marked hopes for a cut from the US Fed.
"At the same time, intense volatility in European and US equities markets has triggered safe harbour demand from investors.
"China's expansion of macro-economic policy measures and rising hopes of economic recovery have made the market more optimistic about the renminbi and renminbi-denominated assets riding strong."
Zhong Zhengsheng (钟正生), chief economist with Ping An Securities, pointed to three macro-factors that favour strengthening of the renminbi - a decline in the US dollar index, the intensification of Chinese policies to stabilise growth, and the trade surplus hitting new highs.
"Additionally, the rise in the Japanese yen is a triggering factor for a sharp appreciation of the renminbi," Zhong said.
According to Zhong, ever since 2023 these has been a high level of correlation between the renminbi and yen exchange rates, largely because both are low-interest currencies that can be used for carry trades.
Wang Youxin (王有鑫), senior researcher from Bank of China, said that the level of correlation between Asian currencies is strong, with declines and rises often arriving in lockstep.
"The market's risk preferences with regard to Asian currencies including the renminbi have all risen," Wang said.
Wen Bin (温彬), chief economist with China Minsheng Bank, highlights the role of renewed hopes for a rise in Chinese demand.
"With the accelerated implementation of policies including interest rate cuts and fiscal stimulus in July, domestic demand is expected to receive a boost, and continued reheating of external demand has been quite stable," Wen said.
"The renminbi exchange rate will fluctuate within a range of 7.1 to 7.3 to the US dollar most of the time."
Chinese companies account for a quarter of the Fortune Global 500
The 2024 list of the world's 500 biggest companies as compiled by Fortune Magazine features a total of 133 Chinese firms, accounting for nearly 27% of the total.
Three Chinese companies made the top ten - all of them state-owned power and resource concerns.
These included State Grid in 3rd place, Sinopec in 5th and China National Petroleum in 6th.
The 2024 Fortune Global 500 also saw the addition of three new companies from China - automaker Chery, Internet retailer Pinduoduo and Hangzhou Industry Investment Group.