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News from China
Yuan-dollar formula facing change
30th May 2017

 CHINA plans to change a formula for forming the yuan-US dollar central parity rate, a move to ensure stable exchange rates at a time when global financial markets remain beset by instability.

 
Under China’s market-based, managed floating exchange rate regime, the yuan can rise or fall by 2 percent against the dollar from the central parity rate each trading day.
 
The central parity rate is a weighted average of quotes from dealer banks, and follows a formula of the previous day’s closing rate and changes in a basket of currencies.
 
The new formula, announced last Friday by the China Foreign Exchange Trade System, will allow dealers to incorporate a “counter cyclical factor” into the existing formula.
 
In a statement, CFETS said China’s foreign exchange (forex) market was easily influenced by irrational expectations and “spurred by inertia, due to a certain level of “pro-cyclicality,” which distorts market demand and supply, and magnifies the risk of exchange rate over-correction.
 
The proposed adjustment aims to “appropriately hedge against the pro-cyclical fluctuation in market sentiment and alleviate the potential for herd behavior in the forex market,” the statement said.
 
It added the “counter cyclical factor” would be adjusted in accordance to China’s economic performance, but it did not give further details about how and when the potential new formula would be used.
 
CICC analyst Chang Huili said the “counter cyclical factor” might be adjusted according to a number of economic indicators, particularly those concerning growth and inflation.
 
According to Commerzbank senior economist Asia Zhou Hao, “counter cyclical factor” could counteract the impact of the previous day’s excessive volatility by reducing the closing rate’s role in the next day’s central parity rate, and help to ensure the general stability of the yuan exchange rate.
 
CFETS noted on Friday that the yuan-dollar market exchange rates had recorded lower levels from the central parity rate, despite China’s improving economic fundamentals and a weakening US dollar.
 
According to CICC, the yuan has depreciated 2.7 percent this year against the CFETS basket, in contrast to the notable improvement in economic fundamentals this year.
 
“The new formula will enable the yuan-dollar exchange rate movements to be more independent and better reflect the domestic economic fundamentals,” Chang Huili said.
 
The CICC analyst expects the yuan to be well supported by China’s economic fundamentals this year, saying a prolonged period of growth slowdown was unlikely.
 
The proposed formula change comes amid China’s efforts to push reform to the yuan’s exchange rate formation system to make the currency more market-oriented and internationally recognized.
 
Last October, the yuan joined the dollar, euro, pound and yen in the International Monetary Fund’s special drawing right (SDR) currency basket.
 
“After joining the SDR basket, the yuan’s better reflection of domestic economic and financial performances has become an important precondition to help diversify global risk, and a solid foundation for the internationalization of the currency,” said Meng Xiangjuan, an analyst at Shenwan Hongyuan Securities.
 
Pan Gongsheng, deputy governor of the People’s Bank of China, said China’s efforts to seek a balance between making the yuan exchange rate more flexible and keeping it more stable is good for the global community, avoiding negative spillover effects from the yuan’s disorderly adjustment or competitive currency devaluations.
Source: Shanghai Daily, May 30, 2017
Yuan-dollar formula facing change
29th May 2017

 CHINA plans to change a formula for forming the yuan-US dollar central parity rate, a move to ensure stable exchange rates at a time when global financial markets remain beset by instability.

 
Under China’s market-based, managed floating exchange rate regime, the yuan can rise or fall by 2 percent against the dollar from the central parity rate each trading day.
 
The central parity rate is a weighted average of quotes from dealer banks, and follows a formula of the previous day’s closing rate and changes in a basket of currencies.
 
The new formula, announced last Friday by the China Foreign Exchange Trade System, will allow dealers to incorporate a “counter cyclical factor” into the existing formula.
 
In a statement, CFETS said China’s foreign exchange (forex) market was easily influenced by irrational expectations and “spurred by inertia, due to a certain level of “pro-cyclicality,” which distorts market demand and supply, and magnifies the risk of exchange rate over-correction.
 
The proposed adjustment aims to “appropriately hedge against the pro-cyclical fluctuation in market sentiment and alleviate the potential for herd behavior in the forex market,” the statement said.
 
It added the “counter cyclical factor” would be adjusted in accordance to China’s economic performance, but it did not give further details about how and when the potential new formula would be used.
 
CICC analyst Chang Huili said the “counter cyclical factor” might be adjusted according to a number of economic indicators, particularly those concerning growth and inflation.
 
According to Commerzbank senior economist Asia Zhou Hao, “counter cyclical factor” could counteract the impact of the previous day’s excessive volatility by reducing the closing rate’s role in the next day’s central parity rate, and help to ensure the general stability of the yuan exchange rate.
 
CFETS noted on Friday that the yuan-dollar market exchange rates had recorded lower levels from the central parity rate, despite China’s improving economic fundamentals and a weakening US dollar.
 
According to CICC, the yuan has depreciated 2.7 percent this year against the CFETS basket, in contrast to the notable improvement in economic fundamentals this year.
 
“The new formula will enable the yuan-dollar exchange rate movements to be more independent and better reflect the domestic economic fundamentals,” Chang Huili said.
 
The CICC analyst expects the yuan to be well supported by China’s economic fundamentals this year, saying a prolonged period of growth slowdown was unlikely.
 
The proposed formula change comes amid China’s efforts to push reform to the yuan’s exchange rate formation system to make the currency more market-oriented and internationally recognized.
 
Last October, the yuan joined the dollar, euro, pound and yen in the International Monetary Fund’s special drawing right (SDR) currency basket.
 
“After joining the SDR basket, the yuan’s better reflection of domestic economic and financial performances has become an important precondition to help diversify global risk, and a solid foundation for the internationalization of the currency,” said Meng Xiangjuan, an analyst at Shenwan Hongyuan Securities.
 
Pan Gongsheng, deputy governor of the People’s Bank of China, said China’s efforts to seek a balance between making the yuan exchange rate more flexible and keeping it more stable is good for the global community, avoiding negative spillover effects from the yuan’s disorderly adjustment or competitive currency devaluations.
Source: Shanghai Daily, May 29, 2017
China Eastern nurtures ‘Aerial Silk Road’ connectivity
26th May 2017

 CHINA Eastern Airlines, which operates 131 international routes to 45 cities in 21 countries located along the Belt and Road, plans to create an “Aerial Silk Road” to facilitate the nation’s initiative and help the carrier expand its global network.

 
The flight capacity on the Belt and Road nations has increased by 45 percent for the past three years, the airline said.
 
Proposed in 2013, the Belt and Road initiative is a grand plan to connect Asia with Europe and Africa along, and beyond, ancient trade routes by putting in place an unparalleled trade and infrastructure network. The project calls for expanding trade across Asia, Africa and Europe by investing in ports, railways and other facilities.
 
China Eastern aims to form an Aerial Silk Road, said Liu Shaoyong, president and Party secretary of the China Eastern Airlines Group. The carrier will not only enhance the transport capacity but also develop supporting industries overseas including aircraft manufacturing, aviation hub, maintenance and finance, Liu added.
 
Ma Xulun, the airline’s general manager, said the carrier plans to open routes to all the nations along the Belt and Road.
 
In June 2016, the airline opened four international routes within 8 days from Shanghai to St Petersburg, Prague, Amsterdam and Madrid to expand the European market.
 
Since it started flying on June 23, 2016, from Shanghai to Prague, the route has an average load factor of over 80 percent, the airline said.
 
Besides Shanghai, the airline has also developed Xi’an in Shaanxi Province as a new hub for the Aerial Silk Road. The northwestern city once served as the starting point of the ancient Silk Road.
 
The airline’s northwest branch also flies to Sydney and Moscow using the Airbus 330 wide-body aircraft. It plans to open new routes this year between Xi’an and St Petersburg, Irkutsk, Prague, Vancouver and Saipan to help cement Xi’an as a starting point again for the new Silk Road in the air, China Eastern Northwest Co said.
 
Other regional transport hubs for the Belt and Road initiative include Kunming in Yunnan Province and Fuzhou in Fujian Province.
 
The carrier has trained a batch of foreign crew members from Japan, South Korea, France, Germany and Italy to serve passengers along the routes.
 
China Eastern has operated an average of 63,000 passengers’ seats daily in 2016 on international routes, up 45 percent from that of 2013. The capacity for flights to European, Australian and US destinations has increased by 87 percent from 2013. The Southeast Asia capacity has taken off by 40 percent, according to the carrier.
 
To facilitate the expanding network, the airline has retired over 100 passenger aircraft and purchased new planes, making the average age of the fleet around five years, younger than most fleets of international carriers.
 
The airline has also invested heavily to expand the cargo transport network to implement the Belt and Road initiative.
 
A global cargo transport network has been established with Shanghai serving as the core hub with Tianjin, Zhengzhou in Henan Province, Xi’an, and Ningbo in Shanghai’s neighboring Zhejiang Province, becoming supportive hubs, the carrier said.
 
China Eastern has also inked several agreements for international cooperation to give the Belt and Road initiative a huge boost. Delta, the world’s third-biggest carrier, said in September 2016 that it would buy 465.91 million Hong Kong-listed shares of China Eastern. The cooperation has helped the Shanghai-based airline to further expand in Oceania and America.
 
China Eastern has also collaborated with Ctrip, China’s top online travel agency, in selling air tickets and operating a budget carrier.
 
China Eastern is a partner with the Shanghai Disney Resort
Source: Shanghai Daily, May 26,2017
Progress seen in mixed-ownership reform in SOEs
25th May 2017

 CHINA’S mixed-ownership reform in centrally administered state-owned enterprises has made steady progress, the country’s top economic planner said yesterday.

 
Two groups of about 20 central SOEs have piloted the mixed-ownership reform scheme and made smooth progress, the National Development and Reform Commission said.
 
“The scope of the third group of central SOEs chosen to conduct the reform will expand, and priority will be given to enterprises in provincial-level regions,” an online NDRC statement said. “Mixed-ownership reform, conducted through diversifying the shareholding structure of SOEs, is an icebreaker for overall SOE reform.”
 
The reform includes bringing in multiple types of investors to central SOEs, exploring flexible and market-based salary systems and selling shares to SOE employees.
 
The reform has taken substantial steps in electricity, oil, natural gas, railway, civil aviation, telecommunications and military industries.
 
China has 102 central SOEs, which manage the bulk of the country’s state assets. But their monopolies in many sectors shut out smaller market entities and lead to low efficiency and poor service.
 
Mixed-ownership reform appears to be the most significant means to improve the efficiency of central SOEs.
 
The companies saw their combined profits and revenues both return to growth in 2016. Total profits climbed 0.5 percent year on year to 1.23 trillion yuan (US$179 billion), while revenues rose 2.6 percent to 23.4 trillion yuan.
Source: Shanghai Daily, May 25, 2017

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