China

A momentous step forward has recently been taken by the Chinese government in its quest to apply a Value Added Tax (VAT) across both its goods and services sectors.

China’s informal and unregulated shadow banking system has grown rapidly in the past two years, and now accounts for over one-fifth of total credit in the economy. Among the reasons for this rapid growth are: (i) efforts by depositors to shift from standard bank accounts to higher yielding wealth management products; and (ii) incentives for lenders to circumvent tighter prudential regulations imposed on the formal banking system. The shadow banking system has played a useful function in the past, by channeling credit to profitable businesses, especially SMEs that might otherwise have been credit constrained.

What a difference a year makes, or does it? Here we are at the beginning of a new year, ready to manage the challenges before us. It's also a good time to take stock of what has changed and not changed over the past year. Unfortunately, the global economic and regulatory pressures of the past years are still with us, which will have a meaningful impact on how we do business during the period ahead. While favourable trends are difficult to find these days, one of the shining stars is the offshore RMB market. RMB settlement volumes in Hong Kong more than doubled over the past year, RMB cash deposits soared to well over RMB 600 billion and the number of issuers tapping into this market continues to grow. There is also increasing interest in Reg S and Rule 144A securities issuance, and we're hearing about plans to issue the first CNY-denominated sukuk. The most active issuers of CNY-denominated paper are based in mainland China and Hong Kong. They are working through both syndicated and non-syndicated distribution channels, targeting both local and foreign investors. Issuers are mostly using one of two options to tap the “dim sum” bond market, either by issuing RMB-denominated securities through the Hong Kong Central Money Markets Unit (CMU) or the international central securities depositories (ICSDs), such as Euroclear Bank. Within the two options, the issuance process is very similar, except for inclusion of the “lodging agent” that only accompanies issuance through the CMU. International issuers are already familiar with the ICSD issuance process, which is the same as for Eurobonds. We find that issuers are becoming more sophisticated when selecting the place of RMB securities issuance, considering where they will be more likely to reach a local or international investor base. Moreover, if there are any special requirements, such as the need to collect tax certificates specific to the issuer’s jurisdiction, they are including this consideration in their choice of venue. Due to its strong position as an international financial centre and hub to mainland China, Hong Kong has clearly established itself as the natural offshore RMB centre. Singapore, New York and London are also positioning themselves as alternative offshore centres, and RMB-denominated bonds are now even listed in Luxembourg. Trades in some RMB bonds may be settled in a currency other than the RMB, which are known as synthetic bonds. The offshore RMB market is still a relatively short-term paper market. More than 96% of issues have a tenor of five years or less. In addition to RMB-denominated bonds, we are also seeing equities, investment funds and hybrid securities in RMB. Thus, the internationalisation of the offshore RMB-denominated securities market is a reality. And, with this favourable trend comes the responsibility for market participants to manage exposures arising from different types of transactions involving these securities, particularly on a cross-border basis. For example, the CME Group, the world’s largest futures exchange based in the US, will allow international investors to use the RMB as collateral for trading in all its futures products in January 2012. These are some of the reasons why Euroclear Bank is a strong supporter of collateral pooling, where assets held in a domestic market, either in the local CSD or with local banks, can be used to support collateral needs for cross-border transactions outside the home market. This also means that assets held in Euroclear Bank can be as easily moved to the domestic market or abroad for the same purpose. The range of securities that may be used as collateral is enormous, when considering that Euroclear Bank has more than €22 trillion of assets held in custody. The collateral management services to be offered by local entities, such as the local CSD, can be white labelled or offered as a Euroclear Bank service to their clients. Settlement of collateral movements occurs locally between local CSD accounts, and local CSDs retain full ownership of their contracts and relationships with their members. The service can also be extended to help local market participants manage their collateral needs for central counterparty margin management. And, the range of transactions are almost limitless, including repos, derivatives, securities loans, central bank monetary policy operations, access to central bank liquidity and more. The international capital market community has been seeking ways to ease access to China and promote best practices within this fast-changing market. For example, SWIFT and the Asian Securities Industry & Financial Markets Association (ASIFMA) have organised and led various working groups to tackle issues relating to reference rates, the distinction of trade versus non-trade settlement, the differences between onshore and offshore transactions, and the possible need for a new currency code (CNH) for offshore CNY, among others. There are also some exciting developments happening on a pan-Asian dimension. A task force comprising Asian central banks, CSDs and Euroclear Bank are looking to create a post-trade infrastructure for the clearing and settlement of Asian bond transactions. A pilot platform is being conceived for launch in the first months of 2012. The Hong Kong Monetary Authority, Bank Negara Malaysia and Euroclear Bank will streamline cross-border settlement of Asian bond trades, build a common securities database, manage relevant corporate actions, facilitate the primary issuance of new securities and perform the necessary collateral management functions to ease cross-border flows. The beauty of this common approach is that it tackles local market issues and needs using existing infrastructure, thereby limiting up-front investments and providing a quick time-to-market timeframe. Moreover, it enables each country to develop its local bond market at its own pace, offers issuers the opportunity to reach investors in multiple markets through a single platform and provides the foundation for future initiatives to harmonise market rules and practices across markets. We look forward to welcoming other Asian infrastructures to connect to this common platform and to consider the appropriate involvement of other business partners, such as SWIFT and global custodians. The world's capital markets have their sights on the APAC region. While Asia is not immune to the turmoil storming through the US and Europe, the growth prospects of many Asian and South American markets are expected to outperform the western world. The success of the offshore RMB market is clear and is evidenced by the confidence investors have shown in the stability and promise that the region can offer. The infrastructure service providers have an important role to play in furthering progress while keeping a very watchful eye on managing the risks associated with more global market participation in the region.

Shares of China's five biggest banks lost an average 22% in 2011 on concerns that a record two-year credit boom may unravel and lead to rising bad debts.

Metrobank now has a branch in Changzou, Jiangsu province, to provide financial services for more than 68,000 SMEs.

ABC wil deepen its cooperation with Ivey Business School and Bank of Montreal to develop talents, according to Mr. Zhang Yun, President of ABC.

ICBC launch of bill pool service nationwide specially for corporate clients who demand for cash management service.

ICBC rolled out an online fast service for small payment that enables customers to make small payments for online shopping or other e-commerce activities.

According to Reuters, the vehicle will target investments in the US and Europe.

61% of global investors predict that the country will face a crisis within the next five years.

F@ST Abacus was employed by a Turkish bank to manage its off-site ATM location selection process.

Chinese and Japanese banks are among the top 20 coal financing banks, along with those from the US, UK, Germany, France, Switzerland, and Italy.

Only two Chinese banks, Bank of China and China Construction Bank, were upgraded by Standard&Poor's, reports Xinhua News.

Bank of China recorded a profit after tax of RMB101.28 billion in the first three quarters, an increase of 22.09% compared with the same period of 2010.

ABC realized a credit card income of RMB6.55 billion in the first three quarters this year.

The volume of international trade finance transactions conducted by ABC amounted to USD72.4 billion, representing a year-on-year increase of 94%. Its balance of trade finance transactions in domestic and foreign currencies was USD19.85 billion, up 51.7% over the beginning of the year.