CNY: Longer duration, higher cost - Westpac

In China, the NDRC has issued a consultation paper on the management of offshore investments by corporates and while there are both facilitating and monitoring aspects, the eye-catching points include the plan to track onshore corporates’ overseas investment that is done via offshore subsidiaries, points out Frances Cheung, Research Analyst at Westpac.

Key Quotes

“This is in line with the direction on continued monitoring of ODI.”

“October new yuan loans and aggregate financing will be closely watched. Onshore investors remain cautious towards the authorities’ deleveraging stance. Deleveraging is likely to be on a targeted basis in our view, while the average funding cost from PBOC liquidity provisions (via reverse repos or MLF) can edge up further if more longer-tenor instruments are deployed.”

“USD/CNY may face further upside if the recent trade data from China is interpreted as pointing to a slowdown in growth momentum, with the next target at 6.65.”