China: Financial market reforms taking place - Westpac

Frances Cheung, Research Analyst at Westpac, explains that speeches and comments made during the NPC suggest that China’s financial market reform is likely to be mostly facilitated via deepening capital account convertibility.

Key Quotes

“If there is any further FX reform, we believe it is more likely to be done via 1) relaxation on capital flows; and/or 2) a lighter weight on the counter-cyclical factor (CCF) in CNY fixing. A wider trading band is not particularly meaningful given daily volatility.”

“Recent data point to stabilization in capital flows from the huge outflow pressure that was seen in 2015 and 2016. Balance of foreign exchange settlement and sales by banks, and by banks on behalf of clients, turned positive in September, after 26 months of negative readings. That said, some unidentified outflows are still present on the BoP. We expect CNY to follow the broad trend in the dollar, trading between 6.63 and 6.65 in the near term.”