All About RMB - BNP Paribas Securities Services

All About RMB
Bank and Investor Handbook
The bank for a changing world
CONTENTS
Why invest in China?
Macro update
RMB payment infrastructure – BNP Paribas clearing capacity
03-04
05
The RMB is an asset class of its own!
06-07
The 2nd largest equity market in the world
08-09
The 3rd largest bond market in the world
10-12
RMB FX market
13
How to invest in China?
1 I am an offshore investor without quota, what options do I have?
15
Offshore products in RMB are fast developing
15-16
Active management solutions
16-17
Derivative solutions
2 Then how can I have access to my own quota?
18
19
Which quota for which market?
19
Which quota for which investor?
20
How to get a quota?
21
3 What can BNP Paribas offer me now that I have my quota?
BNP Paribas is a market leader in dealing in RMB onshore bonds
22
22-23
Quota advisory service
23
Asset owner and asset manager custody services
24
4 What extra accesses would I have with an onshore entity?
25
Who are the Chinese regulators?
25
How to set up an onshore entity – FDI policy
25
Examples of products available only onshore
26
Appendix
Glossary of useful terms
Contact us
Please refer to "Glossary of useful terms" for all the acronyms used in this brochure.
28-29
30
November 2013
An overview of the world’s No. 2 economy.
Why invest in China?
China is now the second largest economy in the world, it has seen its trade clout
growing at an average rate of 22% per annum for the last 10 years. The use of
RMB has gone from virtually zero to more than 13% of the overall exchanges in
trade transactions between China and the rest of the world in the past two
years. We expect China trade to double by 2020 and the usage of RMB to
continue expanding until it becomes one of three major global currencies.
Macro update
The size of an economy matters, but
Chart 1: Chinese structural reform
and marginal returns on investment*
improvement in economic efficiency
matters even more. From an
investment perspective, there is a
rising appetite among investors for
re-rating stories. In this regard,
China's importance in the global
market is bound to increase, as it is
the only large economy with a
structural story unfolding in the
coming decades. Investment themes
in the Chinese market abound,
including structural rebalancing,
urbanisation, financial liberalisation
and RMB internationalisation, but
they have yet to be fully uncovered.
6.00
5.00
Diminishing marginal
returns due to
growth fatigue
new reforms needed
Economic reform
(started in 1978)
raised the marginal
returns on
investment (MRI) in
the early years
4.00
3.00
2.00
Big-bang
reforms under
Zhu Rongji
pushed up MRI
1.00
0.00
60
63
66
69
72
*5-year moving average
75
78
81
84
87
90
93
96
99
02
05
08
11
Sources: Factset, BNP Paribas Investment Partners
The Chinese leaders are kick-starting
productivity. However, the “reform dividends” have been exhausted during the past
a new wave of economic reforms,
decade (Chart 1).
which are China’s first significant
moves since the 1990s when former
Macro update
chg in GDP per unit chg in inv’t (CNY bio)
strategic asset allocation to uncover
7.00
premier Zhu Rongji implemented
state sector reform, which led to
rising investment efficiency and
All About RMB｜03
Structural rebalancing in the Chinese economy has been happening since the mid-2000s
when income and investment growth trends started shifting from the rich eastern
provinces to the poor interior regions (Chart 2 and 3). But these trends have yet to be
priced in by the Chinese asset market largely because they happen slowly and are often
masked by cyclical fluctuations of the economy. These changing dynamics need to be
sustained to ensure successful structural rebalancing.
Chart 2: Per capita GDP rebalancing
towards the inland
50%
45%
40%
Central region
Western region
35%
30%
29.0%
1985-9
1990-4
1995-9
2000-4
2005-9
65.0%
60.0%
27.0%
25.0%
55.0%
23.0%
50.0%
21.0%
19.0%
45.0%
17.0%
15.0%
1980-4
Central region (LHS)
Western region (LHS)
Eastern region (RHS)
31.0%
Central region / Western region
as a share of total fixed-asset inv’t
as a share of the eastern region
55%
2010-2
40.0%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Sources: CEIC, BNP Paribas Investment Partners
Eastern region share of total fixed-asset inv’t
The relative income gap
between the inner regions
and the eastern region is
narrowing, though the
absolute gap remains large
Chart 3: Investment moving inland
Sources: CEIC, BNP Paribas Investment Partners
Market is deregulated through RMB internationalisation
There are also signs that China’s
that is more market-based, the PBoC
settlement in RMB in mid-2009.
monetary policy framework is
has made a step towards improving
Today, there is no impediment to
changing to support economic
capital allocation.
settling foreign trade in RMB for any
rebalancing. For the first time in its
Chinese importers or exporters. The
policy history, in mid-2013 the PBoC
Internationalising the RMB is an
next step to deepen RMB
engineered a credit crunch to rein in
integral part of Beijing’s new reform
internationalisation is to create
bad shadow banking activities.
strategy, as full RMB convertibility
incentives for foreigners to hold and
Subtly, this might mark the PBoC’s
will force corresponding structural
use the RMB for non-trade purposes.
policy shift towards using interest
changes in the economy. China’s
This will involve deeper financial
rates as a tool to enforce monetary
current account has already been
liberalisation, expansion of the
policy in order to regain control of
made fully convertible since 1999,
offshore RMB market and creation of
the money supply. By rebalancing
but trade has been settled in US
RMB-denominated assets for
its policy orientation away from a
dollars. This began to change when
international investment.
control-based model towards one
China started to allow trade
The RMB is going global: from a trade currency to a reserve currency
RMB internationalisation is a
countries based on their contribution
volatility will be high during this
mega-trend that will unfold in the
to world GDP growth instead of their
period. However, market access for
coming years. The new reform
relative global bond market share.
foreigners is also improving, with
development will make the Chinese
This is a secular shift in global asset
steady expansion in foreign
system more efficient and liberal,
allocation strategy that will benefit
investment quotas and creation of
opening up more economic
Chinese assets as the country’s
new vehicles such as Equity Tracked
opportunities to the world. Reserve
contribution to world GDP growth
Funds (ETFs) expected to continue.
money, such as investment from
will grow over time.
This transition period also marks the
official institutions (OIs), including
China’s economy and its policy
asset class of their own, and it should
funds, is starting to gain exposure to
framework are moving into a
provide long-term investors with an
China's rising economic clout. Some
transition period. This process will
opportunity to build positions and
OIs are starting to allocate assets to
be by no means smooth. Asset price
capture the initial wave of re-rating.
All About RMB｜04
Macro update
start of RMB assets becoming an
central banks and sovereign wealth
RMB payment infrastructure
Whilst RMB is now becoming a reserve currency for more and more central banks, one has to remember that the RMB
internationalisation process started with trade related transactions. This has allowed China to stabilise prices for imports of
commodities, in particular metals and now oil. On the other side of the equation, more and more international buyers are looking
at using the RMB for purchasing finished goods out of China. BNP Paribas has set up a RMB clearing capacity for its correspondent
banks in both onshore and offshore markets.
onshore
offshore
China
Bank A
Hong Kong
OPB
CNAPS
China Bank
BNP Paribas
(China) Ltd
Final beneficiary China National Advanced
Payment System
in China
CHATS/RTGS
BNP Paribas Hong Kong
Clearing House Automated
Transfer System
RMB
RMB
Beneficiary in
Hong Kong or
anywhere in the
world
For onshore flows, the SWIFT message is converted into clearing system CNAPS format by BNP Paribas (China) Ltd to reach
the Chinese bank.
For the incoming flows from CNAPS, the payment is converted into SWIFT format to reach the beneficiary bank in Hong Kong.
We recommend opening an account with BNP Paribas Hong Kong in order to handle both onshore and offshore RMB
payments but direct access to BNP Paribas (China) Ltd is also possible should clients only require payments cross border.
BNP Paribas RMB clearing capacity –
One account for onshore & offshore payments
Correspondent Banking
BNP Paribas RMB clearing platform model
Links the RMB onshore and offshore hubs, which enables BNP Paribas to
offer the ability to optimise payment needs onshore and offshore
Beijing
Chengdu
Tianjin
Allows BNP Paribas to offer
Nanjing
Shanghai
Guangzhou
Taiwan
Hong Kong
An easy way to manage your RMB needs
Macro update
Single
All About RMB｜05
Aligns RMB clearing functionalities with EUR clearing capabilities
Account
Documentation
Pricing
Funding process
Direct access to the RMB clearing systems (onshore and offshore)
Single point of access for all RMB clearing needs
Local customer support in mainland China
Using a simplified model
With updated regulations, BNP Paribas recommends opening a single
account (in Hong Kong) for both onshore and offshore payment
requirements
Flexibility to open an additional account onshore, for substantial trade
related settlement with beneficiaries within China
Various investment and global markets activities can be supported
through the single account in Hong Kong
The RMB is an
asset class of its own!
By 2017, the RMB should overtake the Japanese Yen as the world’s number three reserve currency.
This will happen despite the fact that the RMB is not completely convertible. Moreover, access to the
onshore A shares and bond markets is still limited by quotas, the scale and availability of that has
indeed increased since the acceleration of RMB internationalisation in 2010. We now estimate that
roughly USD 200 billion (CNY 1.2 trillion) of quotas have been set up for access to the onshore
markets. As of now any investor in the world can apply for a quota in either USD (QFII) or in RMB
(RQFII) in the offshore RMB centres. Some specific agreements are also in place for clearing banks,
participating banks and central banks under the “Three Institutions Quota Scheme”.
Major reserve currencies & the RMB
62%
Share of global official reserves (%)
30
25
20
15
10
5
0
USD
EURO
JPY
GBP
CHF
RMB
(now)
RMB
(by 2017?)
Investing in RMB assets has become a priority for major money managers
The Chinese equity and bond markets are widely underrepresented in the global index. This is not because of the scale of these
markets, which are already some of the biggest in the world, but mostly because of an access conundrum.
Chinese equity and bond markets are amongst the largest and most liquid in the world
RMB markets have a low and sometimes even negative correlation to major asset classes
Chinese bonds offer an interesting risk return profile for a portfolio (onshore bond markets have yet to see their first default)
China’s economic weight is in general underrepresented in the portfolios
At the current pace of economic development, China will represent more than 20% of the world’s GDP by 2030
All About RMB｜06
The RMB is an asset class of its own!
Sources: IMF, BNP Paribas Investment Partners (Asia)
There is a strong diversification benefit to include RMB denominated
assets in a portfolio
10-year correlation RMB denominated assets with major asset classes, in a USD-based portfolio.
China A shares have low correlation with global equities
In an Emerging Market allocation, China A shares diversification benefit is high: 0.49 correlation over 10 years
Chinese bonds’ correlation with global and emerging markets bonds is low, and even negative with global bonds
China Treasuries
China Corporate Bonds
MSCI China A
China H Shares
Global Bonds
US Treasuries
US Corporate Bonds
Global Equities
US Bonds
Emerging Markets Bonds
Emerging Markets Equities
China Corporate Bonds
China Treasuries
RMB Assets
1.00
0.87
1.00
-0.20
-0.13
-0.08
-0.01
Global and US Assets
0.17
0.22
0.21
0.21
-0.10
-0.05
-0.12
-0.11
-0.10
-0.08
Emerging Markets
0.01
0.02
-0.06
-0.04
China A Shares
1.00
0.61
0.13
-0.10
0.23
0.35
0.34
0.31
0.49
Source: Bloomberg, BNP Paribas Investment Partners, data as at December 2013
Correlation RMB denominated assets since December 2010 (inception of the offshore bonds indices)
China Treasuries
China Corporate Bonds
Offshore RMB Bonds
China A Shares
Small Caps A Shares
China H Shares
China
Treasuries
China
Corporate Bonds
Offshore
RMB Bonds
China
A Shares
Small Caps
A Shares
China
H Shares
1.00
0.72
0.45
-0.06
-0.16
0.18
1.00
0.54
0.08
0.47
0.39
1.00
0.47
0.39
0.66
1.00
0.90
0.62
1.00
0.43
1.00
Source: Bloomberg, BNP Paribas Investment Partners, data as at December 2013
The RMB is an asset class of its own!
Scenario of inclusion of Chinese RMB asset classes in
Global Benchmarks
MSCI Emerging Markets Index
Others 9.7%
Inclusion in global indices would drive large amounts of money into
China’s onshore markets.
Indonesia 2.4%
Morgan Stanley Capital International (MSCI) acknowledged that the
“Chinese equity landscape has started to change” and “as access barriers
fall away, China A‐shares could soon become a viable investment
opportunity set for global investors”. China currently represents 2.2% in
the MSCI SC World Index, with only H shares included. Should A shares be
added, the total exposure would rise to 4.1%.
Russia 5.2%
For an emerging markets benchmark, China would represent 29.0% with
both H shares (15.4%) and A shares (13.6%).
Financial Times Stock Exchange (FTSE) did a similar analysis: the
weight in the FTSE Emerging Index would rise from the current 19.9%
to 30.9%, while for the FTSE Global All Cap Index the weight would
increase from 2.0% to 3.4% if A shares were included.
When it comes to bonds, global indices companies have yet to release
any analysis. But the weight of Chinese bonds in Global Emerging
Markets Fixed Income Indices is 0%, which is low considering it is the
3rd largest bond market in the world.
All About RMB｜07
Malaysia 3.3%
Mexico 4.4%
India 5.6%
South
Africa 6.9%
Taiwan 9.3%
China H 15.4%
China A
13.6%
Korea 13.0%
Brazil 11.3%
MSCI ACWI World Index
UK 8.2%
Japan 7.4%
Canada 4.2%
Australia 3.2%
France 3.0%
USA 47.0%
Switzerland 3.0%
Germany 2.7%
China H 2.2%
China A 1.9%
Korea 1.8%
Others 15.2%
Source: MSCI, data as at 24th July 2012
The 2nd largest
equity market in the world
Key points:
30 years of equity market development in China
It is now the second largest with USD 6.5 billion in market capitalisation
Highly liquid market available to offshore investors only through quota or synthetic solutions
Trading at relatively low price earning-multiples (Fall, 2013)
Characteristics of the China equity market
Ranking
1
2
Market
Volume (EOB)
Capitalisation
USD bio
USD bio
Country / Exchange
United States
24,035
23,285
NYSE Euronext
17,950
13,700
Nasdaq OMX
6,085
9,585
China
7,036
9,107
The China A shares market is mature
Portfolio turnover tends to be significantly higher
Liquidity varies over time due to market sentiment
and monetary conditions
Free float is 33%, which is much lower - therefore
velocity is much higher in the China market
(source: CICC, data as at November 2013)
Hong Kong Exchange
3,101
1,331
Shanghai Stock Exchange
2,497
3,785
‘News flow’- driven market
Shenzhen Stock Exchange
1,438
3,991
High retail participation
3
Tokyo Stock Exchange Group
4,543
6,516
Frequent rotation between sectors and themes
4
London Stock Exchange
4,429
2,315
154 new listings in 2012, no new IPO in 2013 so far
5
NYSE Euronext (Europe)
3,584
1,722
6
TMX Group
2,114
1,333
7
Deutsche Boerse
1,936
1,383
Around 2,489 listed shares on the domestic market
Source: World Federation of Exchanges, data as at December 2013
Equity markets overview
Share Type
Definition
Availability to Foreign Investors
Market Cap (in USD bio)
A
Listing in Shanghai or Shenzhen
bourse, denominated in RMB
Yes, but only after acquiring QFII (Qualified
Foreign Institutional Investor) License
4,778
B
Listing in Shanghai or Shenzhen,
denominated in US or HK dollar
Yes
106
Listing in Hong Kong,
denominated in HK dollar
Yes
2,034
Listing in NYSE and NASDAQ
denominated in USD dollar
Yes
263
Listing in Taiwan,
denominated in NT dollar
Yes
2
(Finance, Machinery, Pharmacy...)
(undervalued sectors)
H/Red Chip
China Stocks listed in US
(Internet, new clean energy ...)
Taiwan Stocks
(Semicon, LCD...)
Source: BNP Paribas Investment Partners, Bloomberg, data as at 1st February 2015
All About RMB｜08
The 2nd largest equity market in the world
Summary of A,B,H,N and Taiwan shares
Industry split - Chinese equity market
Dual listing
Access to all markets is essential due to the following paradox:
The markets are complementary
The dual listings provide trading opportunities
Dual
Listing
86
H Shares
204
There is a significant difference in sector weights between the different types of shares
Mispricing/inefficiencies
(Source: Wind, January 2015)
Offshore & onshore markets provide a different exposure to China
Consumer,
cyclical 12%
Properties &
Construction 5%
Financial 40%
Telecommunications 3%
Consumer goods 1%
Services 7%
Industrial 13%
A Shares
2614
Utilities 2%
Financial 47%
Consumer,
Non-cyclical 14%
Basic materials12%
Utilities 3%
Enegery 6%
Energy 28%
CSI 300 (Shanghai and Shenzhen Listed)
Basic materials 7%
Hong Kong China Enterprise Index (HK Listed)
Source: Bloomberg, August 2013
Source: Bloomberg, August 2013
Investor base - Proportion of institutional/retail investors
HKEx
participants’
principal trading
Financial
institution 15.19%
Overseas
institution 42.2%
15.4%
Local
retail 17.2%
A shares
Industrial
capital 3.88%
A shares are driven by retail
H shares
Overseas
retail
Individual 80.93%
For A shares, individual
investors accounted for 25% of
the market capitalisation, and
80% of the trading volume
3.9%
On the other hand, industrial
capital accounted for over 57%
in float market capitalisation
for A shares, and has a trading
volume of below 4%
Local
institution 21.3%
H shares are driven by institutional investors
Source: CICC Equity Research, August 2013
We still favour a moderate economic recovery in China in 2013 and 2014 that should support Chinese stock valuations,
which currently appear to be very low in comparison to other countries
The MSCI China is undervalued relative to its historical-average PER multiples and is trading at a discount to all major
markets in Asia. Outperformance of the Chinese markets versus the rest of Asia should continue
All About RMB｜09
Source: Bloomberg
1
Ja 3
n
14
13
g
Au
12
g
b
Fe
Au
1
12
l1
n
Ju
Ja
0
11
Ja
n
l1
10
Estimated Next Twelve Months PE
Ju
09
Ja
n
09
Ju
l
08
Ja
n
08
Ju
l
07
Ja
n
07
Ju
l
06
Ja
n
06
Ju
l
Philippines
Chile
Mexico
Colombia
Hong Kong
Japan
Indonesia
Malaysia
US
Taiwan
DM
India
Global
Source: Bloomberg, data as at 1st April 2013
LATAM
Thailand
EUR
South Africa
Poland
Brazil
Turkey
GEM
EM Asia
Czech Republic
Korea
China
EMEA
E.g.: China’s PE is 9.19 while that of Brazil is 11.25. The difference is 2.05
50
45
40
35
30
25
20
15
10
5
0
Ja
n
China PE compared to other countries
Russia
12
10
8
6
4
2
0
-2
-4
-6
Hungary
Difference of the PE (in points)
Equity
The
2nd
Market
largest equity market in the world
Performance - Trading at low price earning level
5 year historical PE average
The 3rd largest
bond market in the world
Key points:
China’s bond market has been developing over twenty years
It has reached USD 4.7 trillion, with 23% annual growth in the last ten years
The bond market will be used by the Chinese authorities to disintermediate financing and
liberalise interest rates
Very little credit risk differentiation as onshore market has yet to see its first default
China’s bond market - A little bit of history
Ministry of Finance (MoF)
resumed issuing
government bonds
Commercial Papers (CPs),
Senior and Sub financial
bonds (LT2), ABS, Panda bonds
Introduction of the
exchange bond market
and OTC market
Collection Notes
issued by SMEs
Medium-Term
Notes (MTNs)
Establishment of
Interbank bond
market
Credit Risk Mitigation
Instruments
CSRC Launched
Corporate Bonds
PBoC Bills
1981
1988
1992 1993 1994 1995
Qualified foreign central banks
RMB clearing banks in HK and Macau
Offshore RMB trade settlement banks
Allowed to invest directly in inter-bank
bond market
The start of the Dim Sum market
1997
2002
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
QFII Quota invested
in the exchange
bond market
Interest Rate Swap
(IRS) and Hybrid
capital (UT2 bonds)
QFII allowed to enter
inter-bank bond market
Private Placement Notes (PPN)
bonds for SMEs
Resumed ABS
Resumed Treasury Bond Futures
Scale expansion of QFII and RQFII
More bond underwriters
Expansion of investment scope for insurance companies
Market mechanism development
RQFII quota launched
to invest in onshore
bond market
RQFII quotas granted to
offshore RMB centers
Product innovation
As of March 2014, the total amount of bonds outstanding in the interbank bond market stood at CNY 30.0 trillion (USD 4.9 trillion),
nearly 53% of China’s GDP in 2014. It is now the third largest bond market in the world after the U.S. and Japan.
The Chinese bond market CNY 29.9 trillion
CNY trillion
30
+14%
26.2
25
20.7
20
15.7
12.9
10
0
22.4
18.1
15
5
29.9 30.0
8.0
3.7
4.8
9.8
6.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
YTM
Source: Wind, BNP Paribas
Government Bonds
Policy Bank Bonds
Corporate Bonds
China bond market breakdown
53% of GDP
PBoC Bills
Financial Bonds
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
YTM
Source: Wind, BNP Paribas
All About RMB｜10
Equity
The
3rdMarket
largest bond market in the world
Growth of the market - Driven by corporate bonds
Three markets: offshore, interbank and exchange listed
Offshore
Onshore
Rate
Bonds
Onshore
Credit
Bonds
Major bond types
by markets
Bond Type
Market
Share
Issuing Entities
Tenor
Market
Primary market
regulations
Dim Sum bonds
1%
Any
6m - 30yr
Listed offshore
Free
Free
Government bonds
29.2%
Ministry of Finance
3m - 50yr
Interbank &
Exchange
The State Council,
MoF
CSRC, NAFMII
Local government
bonds
2.7%
Local governments
3yr, 5yr
Interbank &
Exchange
MoF
CSRC, NAFMII
Central bank (PBoC)
bills
4.6%
PBoC
3m, 6m,
1yr, 3yr
Interbank
PBoC
NAFMII
Policy bank
financial bonds
29.0%
Policy banks, including
CDB, ADB, EXIM Bank
6m - 30yr
Interbank
PBoC
NAFMII
Commercial
paper (CP)
5.5%
Non-financial firms
1yr or below
Interbank
NAFMII
NAFMII
Medium term
noted (MTNs)
11.7%
Non-financial firms
3yr, 5yr,
7yr, 10yr
Interbank
NAFMII
NAFMII
Financial bonds
5.8%
Deposit-taking institutions
and other financial firms
2yr - 15yr
Interbank &
Exchange
Company bonds
with Warrants
CBRC, PBoC
NAFMII
Convertible Bonds
Enterprise bonds
8.1%
Unlisted enterprises
3yr - 30yr
Interbank &
Exchange
NDRC
CSRC, NAFMII
Listed-company
bonds
2.4%
Listed companies
3yr - 30yr
Exchange
CSRC
CSRC, NAFMII
(through the MoF platform)
Secondary market
regulations
Central Bank Bills
Mid-term Papers
Commercial Papers
Policy Bank Bonds
Chinese
Government Bonds
Enterprise Bonds
Company bonds
Inter-bank Market 96.3%
Inter-bank & Exchanges
Exchange Market 2.7%
Source: Wind, BNP Paribas, March 2013
Onshore versus offshore – Yield analysis
For the same issuer, onshore bonds provide higher returns than offshore bonds, but rates are bound to converge with the
internationalisation of the Chinese currency.
Wide spread between onshore and offshore
7
6
6.0
5.9
6.0
5
3.9
3.6
4
3.2
3
3.1
3.3
3.4
2.1
2.3
2.4
1
2
3
2
6.2
6.1
4.4
4.1
3.9
3.6
3.4
3.0
SHIBOR versus RMB HIBOR
Price
CNH
4.5
4.3
5.50000
3.8
5.00000
4.91965
4.50000
4.45930
4.00000
1
0
RMB onshore & offshore benchmark rates
6.3
5
7
10
3.50000
Years
3.00000
2.50000
2.00000
Onshore China Government Bonds (CGB) Bonds
Onshore AAA Bonds
Offshore CGB Bond
Offshore Investment Grade Bonds
SHIBOR
HIBOR
1.50000
1.00000
02
Source: Bloomberg, ChinaBonds,
BNP Paribas Investment Partners, 28 January 2014
16
Aug14
02
16
Sep14
01
18
Oct14
02
16
Nov14
02
16
Dec14
04
17
Jan15
03
Source: Reuters
The 3rd largest bond market in the world
Investor base - Onshore market just opening to the world
Policy banks 7%
Foreign 2%
Others 4%
Securities brokers 1%
Credit unions 2%
Managed
funds
10%
Insurance
companies 9%
Commercial banks 67%
Investor Type
Source: Wind
All About RMB｜11
Domestic 98%
Banks and insurance companies are the
dominant players– they are more
conservative and tend to buy and hold
Foreign investors still represent a very
small part of the market players but
growing - thanks to increasing quota
There are 3 types of trading account,
Type A, B, C. Offshore investors qualify
for C status
China onshore bond market – Base rate and credit spreads
Yield curves and market spreads
Global Government Yield Curves
6.00
US
UK
Japan
German
RMB Bond Credit Spreads
China CNH
China
9.0%
8.0%
5.00
7.0%
Yield (%)
4.00
3.00
2.00
1.00
0.00
6.0%
5.0%
AA
4.0%
Gov
3.0%
AAA
2.0%
AA+
1.0%
0.0%
6M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 12Y 15Y 20Y 25Y 30Y
0
5
10
15
Source: Bloomberg, BNP Paribas Investment Partners, January 2014
20
25
30
Maturity(years)
Source: Wind, January 2014
The Government bond curve is relatively flat with little
premium for long tenor bonds
Central government plays a dominant role in allocating
credit in the economy:
There is value in the short end of the curve for investors
looking at comparable U.S., Euro or Japanese government
bonds
- There has not been a default in the Chinese onshore
bond market
- Only firms with high credit ratings can access the
corporate bond market. Therefore most issuers have a
local AAA rating
The stability of the Chinese Yuan in the face of the recent
Asian or global crisis plus the relatively high level of risk
free government bonds makes it a very appealing product
to invest in
- Most of the frequent issuers are state backed enterprises.
- Some big private sector companies also have access to
debt markets
Once again access/quota is the issue as the offshore
government bond offer is extremely limited in size
- The buildup of a proper credit curve pricing is very high
on the priority list of the Chinese authorities as credit
bonds will have an important role to play in the
disintermediation of the economy
With its age dependency ratio evolution, China might
nevertheless become a major issuer in the global
financial markets in the future
Returns can reach up to 5% yield for AAA issuer with 5
years maturity
Onshore Rating System – Little credit differentiation?
Historical Upgrade / Downgrade
Downgrade
China Bond Market
Upgrade
Up/Down Ratio
Downgrade
1800
1.53
1500
1.09
1200
1.01
1.8
1.5
1.2
0.93
900
0.9
600
0.6
300
0
0.28
0.29
2008
2009
0.3
2010
2011
2012
2013
0.0
Upgrade
Up/Down Ratio
37.20
400
40.0
23.86
300
30.0
20.57
20.0
200
100
0
5.53
6.40
10.0
2.79
2008
2009
2010
2011
2012
0.0
2013
Source: Bloomberg, BNP Paribas
Local Credit Rating Agencies
Three major domestic credit rating agencies (over 90% market share). The PBoC serves as the main supervisory
authority of the credit rating industry
CCXI (中诚信) – established in 1992, a joint venture partner of Moody’s (49% stake)
China Lianhe Credit Rating (联合资信) – established in 2000, a joint venture partner of Fitch Ratings (49% stake)
Dagong International Credit Rating (大公国际) – established in 1994, has all franchise qualifications in China
Since corporate default data is very limited, domestic debt rating cannot sufficiently reflect the full differences in
credit quality among various issuers
All About RMB｜12
Equity
The
3rdMarket
largest bond market in the world
US bond market
RMB FX market
In FX markets, these three currencies are the same yet different
USDCNY onshore Deliverable Spot/Fwd
Key Features
USDCNY Non Deliverable Fwd (NDF)
USDCNH Offshore Deliverable Spot/Fwd
It is a deliverable RMB market but
in onshore China only
Offshore non deliverable RMB
market
Offshore deliverable RMB market
traded outside China
Spot and forward are allowed
Usually cash settled in USD
Spot and forward are allowed
Full range of derivative products
No spot, only NDF
Full range of derivative products
Daily trading band +/- 2% of PBoC
Fixing
Full range of derivative products
Fixing Page, Reuters “CNHFIX=”
11:15am Hong Kong time,
contributed by 18 banks in HK
including BNP Paribas
PBoC fixing for NDF/Option,
Reuters “SAEC” 9:15am Beijing
time
Price
/USD
CNY Spot
CNY Fixing
CNH Fixing
6.36
6.34
6.32
6.30
6.28
6.2615
6.26
Historical
Evolution
6.2564
6.24
6.22
6.20
6.18
6.16
6.14
6.1335
6.12
6.1
6.08
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Spot (30 Jan 2015)
Settlement
Liquidity
Bid/Offer Spread
Fixing Page
Products Allowed
Q1 2015
Source: BNP Paribas, Reuters
Market liquidity for forward contracts
Onshore RMB
Q4 2014
Offshore NDF
Offshore CNH
6.1135
Fixing: 6.2609
6.2463
Deliverable Forward
Non Deliverable Forward
Cash-settled in US$
Deliverable Forward
Daily turnover US$18 bio
Daily turnover US$4 bio
Daily turnover US$10 bio
Spot bid / offer 5 pips
Up to US$20 mio
Spot bid / offer 10 pips
Up to US$40 mio
Spot bid/ offer 3 pips
Up to US$5 mio
N/A
Published at 9:15am Beijing time
Reuters Page “SAEC”
Fixed at 11:00am
& published at 11:15am Hong Kong time
Reuters Page “CNHFIX=”
Spot / Forward / Options,
structured products
Spot / Forward / Options,
exotics and structured
products
Spot / Forward / Options,
exotics and structured
products
Source: BNP Paribas, Reuters
RMB appreciation is stable compared to other Asian currencies
RMB FX market
156
152
148
144
140
135
133.0786
129.6508
128.7897
128
126.4234
124
121.1618
117.5014
115.7522
108
104
100
99.5350
92
88
84
82.1534
76
72
68
Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14
Source: Reuters
All About RMB｜13
AUD
THB
IDR
PHP
KRW
MYR
JPY
SGD
CNY
A Guide to:
How to invest in China?
Onshore
Foreign
Invested
Enterprises
(FIEs)
Offshore Investor
Quota Universe
(P.22)
Without Quota
Onshore Products
Active Management Solutions
(P.16)
Offshore Products
(P.15)
Derivative
solutions
(P.18)
Direct Access
Equity
Fund
Advisory
and
Custody
(P.23-24)
Onshore
Products
Bond Fund
Products
Deposits
Certificate
CNH
Bond
Fund
BNP
Paribas
China
RMB
Bond
Fund
Direct
Access
Primary
Secondary
H shares,
Red chips
Large
set of
solutions
not
denominated
in RMB
Mixed
BNP
Paribas
solutions
RQFII
ETFs QFII
ETFs
Structured
products
Warrants
(P.18)
Flexifund
Equity
China A
(P.16)
Bonds
Long
Duration
Equity
Funds
Liquidity
Term and
Structured
Investment
Forex
and
Money
Market
Equities
Advisory
and
Custody
(P.23-24)
Short
Duration
Direct
Access
Forex
and
Money
Market
Deposits
RQFII
Bond
Fund
(P.17)
Flexifund
Bond
RMB
(P.17)
Flexifund
Short
Term
RMB
Government
Policy
Bank Credit
Bonds
Money
Market
Funds
Term and
Structured
Investment
(P.26)
99%
99%
99%
99%
N/A
N/A
Market
Access
N/A
N/A
N/A
1%
1%
25%
75%
75%
N/A
1. Liquidity: availability of getting your investment money back upon request. The scale is from 1 to 3 stars. 1 the lowest, 3 the highest
2. Market Access: how much of the total asset class is available to investors
CNH
HKD
CNY
All About RMB｜14
How to invest in China?
Equities
Bonds
1. Without Quota
I am an offshore
investor without quota,
what options do I have?
Key points:
RMB offshore products are fast developing allowing exposure to a strong and stable currency
Investors can access the RMB securities markets through synthetic solutions
More and more active management funds are developed from offshore
Offshore products in RMB are fast developing
In the RMB offshore centres, new products have appeared to answer the needs of local and international investors. They range
from CNH deposit solutions, CNH bonds ("Dim Sum", "Formosa"), RMB Real Estate Investment Trust, Warrants and some Equity
tracker funds. We expect new products to be developed soon in all offshore RMB centres in the form of certificates, stock listings
Significant growth in the CNH market
Fixed income
CNH Market Yearly Supply
CNY bio
Number of Issues
800
350
700
300
600
250
500
200
400
150
300
100
200
50
100
2007
2008
2009
2010
2011
2012
1,200
2013
2014
0
CNH Bond Outstandings
HK CNY Deposit
1,000
Number of Issues
New Issue Volume
400
0
CNY bio
900
450
Number of volume
I am an offshore investor without quota, what options do I have?
and more asset management solutions.
CNY1004bio as of
December 2014
800
Supplydemand
imbalance
600
400
CNY562bio
200
0
2007
2008
2009
2010
2011
2012
2013
2014
Source: Bloomberg, BNP Paribas
Pool of RMB deposits in Hong Kong totalled CNY 1,004 bio by the end of December 2014. Although investors no longer expect
CNY to appreciate considerably and CNY fund growth rate has slowed, insufficient investment products have still led to a
significant supply-demand imbalance, which drives the growth in the CNH bond market. CNT deposits in Taiwan have reached
CNY 290 bio and will continue to grow as Taiwanese retail switches more and more investments towards RMB.
All About RMB｜15
Offshore CNH bond market - Investor base
Recent CNH transactions investor distribution
Other
Europe 2%
11%
Other
5%
Institutions
& Pension
11%
Asset/ Fund Managers
35%
Investor Base
Singapore
14%
- Global FI Investors
- Corporates
- Private Banks
- Fund Manger
- similar investor base for HKD and
other Asian local currency bonds
Private
Banks
20%
Source: BNP Paribas
Banks
29%
HK/ China
73%
Since 2010, BNP Paribas has
systematically been ranked as a
top 3 underwriter in the CNH bond
Source: Bloomberg
market
Offshore RMB equities – the next frontier
Singapore, Hong Kong, London and the other offshore centres are all
looking at RMB stock listings as a new way to diversify investor
portfolios. We expect significant changes in this space in 2014
Active management solutions
BNP Paribas Investment Partners
BNP Paribas Investment Partners has developed several funds that use our QFII and RQFII quotas to provide access to offshore
investors. These solutions are managed by our Chinese market specialists.
Traditional approach: Flexifund Equity China “A”
BNP Paribas Investment Partners launched its China A shares strategy in 2004, and Flexifund Equity China A was one
of the first China A shares funds in the market
The strategy is based on a bottom up fundamental approach focusing on the long-term appreciation of listed
companies. The portfolio manager explores driving forces behind share prices and identifies the difference between
market price and intrinsic value
BNP Paribas Investment Partners is one of the largest managers for international investors, with USD 1.35 bio of assets
managed by a dedicated equity team for QFII (Qualified Foreign Institutional Investors)*
Risk
HIGH RISK
Return
Liquidity
Market Access
75%
* Data as at September 2013
All About RMB｜16
Equity management
Active
Market
solutions
A large team of more than 15 analysts is based in Shanghai to identify investment ideas benefiting from quality
growth, often overlooked by market participants
Innovative approach: Flexifund Equity China “A” Fund of Funds*
Flexifund Equity China A Fund of Funds provides innovative access to a selection of the best in breed Chinese onshore
equity managers
As the Chinese market can be relatively volatile, this fund of funds structure can be an option for enhancing
diversification, maintaining low volatility and targeting relative outperformance in any market conditions
BNP Paribas Investment Partners’ investment process is managed by experts in both fund selection and operational
due diligence and so offers a high quality, innovative way to invest in onshore Chinese equities
Risk
Return
Liquidity
HIGH RISK
Market Access
75%
*To be launched soon
Invest in onshore Chinese bonds via
BNP Paribas Investment Partners’ QFII funds
We have been managing a QFII fixed income strategy since 2007, when the first QFII fixed income fund, Flexifund Short
Term RMB, was launched. This is a bond fund with most of its assets invested in money market instruments, Chinese
government bonds, both denominated in RMB, with an average maturity of less than 12 months
In 2010, we launched Flexifund Bond RMB to offer exposure to Chinese corporate and government bonds (up to 80% in
corporate and not less than 20% in government). All the bonds are of high quality, with a minimum credit rating of
AA-. Current yield to maturity is 5.12% for an average maturity of 2.49 years (data as at September 2013)
All our bond portfolios are designed to offer stability, liquidity and profitability. The investment process we have
developed includes a credit analysis scorecard and a structured idea generation framework to generate alpha when
investing in Chinese fixed income markets
Risk
Return
Liquidity
MEDIUM RISK
Market Access
99%
Invest in onshore Chinese bonds via
BNP Paribas Investment Partners’ Joint Venture’s RQFII funds
Equity management
Active
Market
solutions
Since December 2011, BNP Paribas Investment Partners’ joint venture is offering RQFII bond funds, allowing the general
public to invest in the onshore bond market
The broad Fixed Income market is part of the investment universe of the strategy, which includes the inter-bank bond
market and the exchange traded bond market
Our RQFII strategy leverages the long experience we have with QFII and allows investors to deal on a daily basis
Risk
MEDIUM RISK
All About RMB｜17
Return
Liquidity
Market Access
99%
Derivative solutions
Global Equities and Commodity Derivatives
BNP Paribas Global Equities & Commodity Derivatives (GECD) provides a wealth of offshore RMB equity products for investors.
From listed warrants to structured derivative instruments
BNP Paribas GECD offers:
Award winning 1 listed warrants in RMB
Equity derivatives products leveraging on our dedicated research and strategy teams’ capacity
Liquidity for QFII ETFs and is top 3 2 market maker for iShares FTSE A50 China QFII ETF (2823.HK)
Liquidity for RQFII ETFs
1 Source:
2 Based
2013 RMB Business Outstanding Award by Metro Broadcast and Wen Wei Po
on YTD market share. Source: Bloomberg , data as at 8th November 2013
How do QFII ETFs & RQFII ETFs work?
QFII ETFs
QFII ETFs can either use the fund manager’s own QFII quota to buy the A shares, or (more commonly) access the A shares
market via A shares linked market access products (MAP) issued by 3rd parties
These ETFs are mostly listed in Hong Kong
Fund manager accesses A shares through MAP
Investor
QFII ETFs
Indirect access to A Shares market
via a 3rd party MAP issuer
Direct access to A Shares market
Fund manager uses own QFII quota
RQFII ETFs
The equity RQFII ETFs Asset Under Management (AUM) has grown to $4.8bn across 7 ETFs* (see below list)
These ETFs are all listed in Hong Kong in HKD & CNH
Each of the below ETFs currently make provision for 10% capital gain tax by withholding
*Source: Bloomberg, data as at 8th November 2013
Name
RQFII ETFs
RQFII ETFs
Benchmark
CSOP FTSE CHINA A50 ETF
FTSE A50
ChinaAMC CSI 300 IDX ETF
CSI300
ChinaAMC CES China A80 Index ETF
CES China A80
E Fund CSI100 A share ETF
CSI100
E Fund CES China 120 Index ETF
CES China 120
Harvest MSCI China A IDX
MSCI China A
Harvest MSCI China A 50 Index ETF
MSCI China A 50
A Shares market
Currency
BBG code
HKD
2822 HK
CNY
82822 HK
HKD
3188 HK
CNY
HKD
83188 HK
3180 HK
CNY
83180 HK
HKD
3100 HK
CNY
83100 HK
HKD
3120 HK
CNY
83120 HK
HKD
3118 HK
CNY
83118 HK
HKD
3136 HK
CNY
83136 HK
All About RMB｜18
Equity Market
Derivative
solutions
Investor
2. Quota Process
Then how can I have
access to my own quota?
Foreign investors need to apply for quotas before investing in the Chinese mainland. There are
three types of quotas currently available to different types of investors: QFII (Qualified Foreign
Institutional Investment) RQFII (RMB Qualified Foreign Institutional Investment), and three
institutions quota (Foreign Central Banks, RMB Clearing Banks in Hong Kong and Macau, Offshore
RMB Trade Settlement Banks).
Which quota for which market?
Equityhow
Then
Market
can I have access to my own quota?
Each quota type provides a different channel to the Chinese securities market. While QFII were initially designed for access to
Chinese equities, the other quotas have been more organised around bond products. There is nevertheless more and more
convergence between RQFII and QFII to provide a fully-fledged offer covering bonds and equities .The exception is the three
institutions quota, which was designed to provide exclusive access to Chinese bonds for banks and central banks which
already have RMB liquidity offshore through deposits or cross currency swap lines.
Foreign Investors
Qualified Foreign
Institutional Investor (QFII)
RMB Qualified Foreign
Institutional Investor
(RQFII)
Foreign Central Banks, RMB
Clearing Banks in HK and
Macau Offshore RMB Trade
Settlement Banks
Market Type
Exchange markets:
CNY 0.7 trillion bonds
(2.7% of total Chinese
bond market) and CNY
3.2 trillion stocks
Trading System
Custodian Settlement
Regulator
Shanghai / Shenzhen
Stock Exchange
CSDCC
CSRC
* Subject to
relevant licence
Interbank bond market:
CNY 28.7 trillion bonds
(96.3% of total Chinese
bond market)
CCDC
CFETS
PBoC, NDRC
and MoF
SHCH
Source: BNP Paribas
All About RMB｜19
Which quota for which investor?
Foreign
Fund/Asset
Management
Banks
Three Institutions
Quota
QFII
RQFII
Restrictions
For Foreign Central
Banks, RMB Clearing
Banks and Offshore
RMB Trade
Settlement Banks
Any offshore
investor
For financial institutions in offshore RMB
centres:
Hong Kong, Taiwan*, London*, Singapore* etc
Definition
Three institutions
quota is the quota
for specially
approved institutions
by PBoC. Only access
granted is interbank
bond market (PBoC)
QFII stands for
Qualified Foreign
Institutional
Investor. Issued in
2002, it allows
foreign investors to
invest in domestic
securities market
(CSRC/SAFE)
RQFII stands for Renminbi Qualified Foreign
Institutional Investor. The programme was
launched in December 2011 and the original
amount was CNY 20 bio (today CNY 500 bio)
(CSRC/SAFE/PBoC)
Currency
CNY
USD
CNY
Number of
investors
Over 60 qualified
investors
262 financial
institutions (as at
01/2015)
27 HK units
of Chinese
funds &
security
firms (as at
2013)
Quota
Estimated:
CNY 250 bio
$68bio
Allocated out of $150
bio total quota
Initial:
CNY 20 bio
(12/2011)
Investment
Category
Fixed income
products in
interbank bond
market
* details still to be defined
Source: BNP Paribas
Onshore equity,
warrant, bonds,
stock index futures
in exchange market
& security funds,
and fixed income
products in
interbank bond
market
80%:
onshore
fixed
income
products
<20%:
onshore
equity &
funds
HK units of Chinese
commercial banks,
Insurance firms and
financial institutions
registered or having
major operations in HK
RQFII in
Taiwan
(Rules &
regulations
to be
defined)
RQFII in
London
RQFII in
Singapore
Additional:
Additional: Additional: Additional:
CNY 80 bio
CNY 50 bio CNY 200 bio CNY 100 bio
(15/10/
(04/2012)
(11/2012)
(01/2013)
2013)
Additional:
CNY 50 bio
(22/10/
2013)
Onshore
equity,
warrant,
bonds,
stock index
futures in
exchange
Onshore A
shares ETFs market &
security
listed in HK
funds, and
exchange
fixed
income
products in
interbank
bond
market
Usage
objective
not
specified
Usage
objective
not
specified
Several quota options are available in the offshore centres,
BNP Paribas can advise on the right process for you
Usage
objective
not
specified
All About RMB｜20
Equity Market
Which
quota for which investor?
Securities Firms
Insurance
Companies
Central Banks
How to get a quota?
QFII & RQFII application and approval process
Foreign Investor
Step 1
Entrust a domestic securities
company to handle its
domestic exchange securities
transaction activities
Step 2
Entrust a commercial bank as cash custodian to manage assets.
If foreign investor wants to invest in interbank bond market, it must
entrust a commercial bank that is qualified for both custodian and
clearing settlement (in this case, needs to apply to PBoC)
Step 3
Rejected
CSRC sends a written
notice to applicant
Approval based on opinion from SAFE (CSRC)
Application for QFII /
RQFII through custodian
(CSRC, SAFE)
Approved
CSRC issues a securities investment license
Step 4
Approved
Safe issues a Forex certificate(QFII) or a Registration certificate (RQFII)
Application for investment
quota through custodian (SAFE)
RQFII
Rejected SAFE sends a written notice to applicant
QFII
Step 5
Special RMB account (each type of investment requires an individual special RMB account)
Account Opening
(Custodian bank)
Forex Account (QFII only)
Exchange bond market
Exchange stock market
Interbank bond market
Institutions specially approved by PBoC
Foreign Central Banks
RMB Clearing Banks in HK and Macau
Step 1
Offshore RMB Trade Settlement Banks
Step 2
Application
to PBoC
Approved
PBoC issues a securities
investment license and
approves investment quota
Foreign Central Banks can entrust PBoC directly as
settlement agency
Entrust a qualified agency in interbank bond market
(46 qualified banks)
Rejected
PBoC sends a written notice to applicant
Open Special RMB Account
EquitytoMarket
How
get a quota?
Step 3
Step 4
CCDC
Type C Account Special RMB account
SHCH
Indirect Settlement Member Account
CFETS
CFETS Settlement Account
BNP Paribas Group can assist you in your application for quota, timeline for approval varies
All About RMB｜21
Bond Investment
Source: BNP Paribas
3. Quota Universe
What can
BNP Paribas
offer me now that
I have my quota?
Key points:
BNP Paribas (China) Ltd is a major bond trading house in the Chinese onshore market
We are able to explain what happens in the bond market following international standards
providing credit analysis and strategic views
For investors who have obtained their quota, we can arrange full service including advisory,
execution and custody through our Investment Solutions platform
Fixed income
BNP Paribas is a market leader in RMB onshore bonds dealing
ChinaBond.com.cn
中國債券信息網
China Bond Trading Volume Ranking
2009 2010
2013
BNP Paribas among foreign banks
2
1
3
2
5
BNP Paribas among all types of dealers
20
11
16
15
18
3. BNP Paribas (China)
Ltd confirms and inputs
trade details into CFETS
1. Trade execution
between BNP Paribas
(China) Ltd and client
BNP Paribas (China) Ltd
Offshore
Client
4. Once CFETS ticket is generated
and matched, settlement bank
will conduct settlement for client
CFETS
2. Client sends
trade details to its
settlement bank
2011 2012
Qualified Settlement Bank
CCDC
3. Settlement bank
confirms trade CFETS
on behalf of clients
All About RMB｜22
Equitycan
What
Market
BNP Paribas offer me now that I have my quota?
At BNP Paribas (China) Ltd, we not only speak the language, we also understand the onshore bond specificities and the market
dynamics in China. Our unique credit and rates platform allows maximum access to bond research and trade ideas. We have
the right experience, size and portfolio to match international standards in quality of service, while interfacing seamlessly
with any Chinese underwriter or dealer.
Onshore bond trading capacity
Wide-ranging Rates Bonds Inventory
MoF Bonds (CGB)
PBoC Bonds
China Development Bank
The Export-Import Bank of China
Agricultural Development Bank of China
Policy Bank Bond
We manage over 80 tradable credit names, one of the strongest foreign bank credit bond trading desks in China
The Top 30 corporate bond issues comprised half of all
outstanding bonds
Dominated by State-owned companies
(26 out of Top 30 issuers)
Most liquid credit bonds
China National
Petroleum Corporation
China Three
Gorges
State Grid
Corporation of China
China Railway Corporation
(former Ministry of Railway)
Shenhua
Group
China’s most liquid credit bonds in inventory
Top 30 issuers of corporate bonds in the People’s Republic of China (data as at September 2013)
Outstanding Amont
Issuers
1. China Railway Corporation
2. China National Petroleum
3. State Grid Corporation of China
4. Industrial and Commercial Bank of China
5. Bank of China
6. China Construction Bank
7. Agricultural Bank of China
8. China Petroleum & Chemical
9. Central Huijin Investment
10. Petrochina
11. China Guodian
12. China Minsheng Bank
13. Shenhua Group
14. China Power Investment
15. Bank of Communications
16. Shanghai Pudong Development Bank
17. China Three Gorges Project
18. China Southern Power Grid
19. Industrial Bank
20. China Life
21. China Merchants Bank
22. State-Owned Capital Operation and
Management Center of Beijing
23. China Huaneng Group
24. Citic Group
25. Huaneng Power International
26. China Everbright Bank
27. Tianjin Infrastructure Investment Group
28. China Datang
29. Bank of Beijing
30. Aluminum Corporation of China Limited
Total Top 30 LCY Corporate Issuers
Total LCY Corporate Bonds
Top 30 as % of Total LCY Corporate Bonds
LCY = Local currency
LCY Bonds
(CNY billion)
LCY Bonds
(US$ billion)
State-owned
Listed
Company
827.00
340.00
339.50
230.00
219.90
200.00
150.00
134.70
109.00
107.50
107.10
102.30
92.00
87.90
86.00
79.20
77.50
70.50
68.00
68.00
61.70
58.50
135.11
55.55
55.47
37.58
35.93
32.67
24.51
22.01
17.81
17.56
17.50
16.71
15.03
14.36
14.05
12.94
12.66
11.52
11.11
11.11
10.08
9.56
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
No
No
Yes
Yes
No
Yes
No
Yes
No
No
No
Yes
Yes
Yes
Yes
Yes
No
Yes
No
Yes
No
No
Yes
Yes
No
No
Yes
Yes
Yes
No
Transporation
Energy
Public Utilities
Banking
Banking
Banking
Banking
Energy
Diversified Financial
Energy
Public Utilities
Banking
Energy
Public Utilities
Banking
Banking
Public Utilities
Public Utilities
Banking
Insurance
Banking
Diversified Financial
58.20
53.50
53.00
52.70
47.80
45.70
43.50
43.00
4,013.74
8,246.74
49%
9.51
8.74
8.66
8.61
7.81
7.47
7.11
7.03
655.74
1,347.31
49%
Yes
Yes
Yes
No
Yes
Yes
No
Yes
No
No
Yes
Yes
No
No
Yes
Yes
Public Utilities
Diversified Financial
Public Utilities
Banking
Capital Goods
Public Utilities
Banking
Raw Materials
Type of industry
Notes: 1. Data as at end-September 2013.
2. State-owned firms are defined as these in which the government has more than a 50% ownership stake.
Source: AsianBondsOnline calculations based on Wind data.
Quota advisory service
BNP Paribas Investment Partners
Equity
Quota Market
advisory service
Ever since the Chinese regulators increased the pace of granting (R)QFII licenses and quota, there is an increasing demand
for Investment advisory services for China onshore investments
The relatively small size of the majority of newly allotted quotas, combined with the complexity of the onshore market leads
the new quota holders towards partnering with an experienced manager to (co) manage the QFII/RQFII portfolio
BNP Paribas Investment Partners’ joint venture (海富通基金) can leverage on almost 10 years of QFII management experience
when servicing these new investors
Around 25% of the total international business (in terms of assets) of the joint venture (海富通基金) today is under investment
advisory agreements (excluding delegated management), totalling USD 720 million
The advisory services differ in level of discretion depending on the mandate. It varies from advice on stock picking to
handling a day-to-day portfolio
All About RMB｜23
Asset owner and asset manager custody services
BNP Paribas Securities Services
What is important to you
as an asset manager?
What is important to you
as an asset owner?
Capture distribution opportunities and broaden footprint
Protect your investments
Build a scalable service model from distribution support
Evaluate your portfolios
to back office operation
Monitor your risks
Reduce risk and cost
Enhance your returns
Navigate the changing regulatory environment
Implement efficient reporting
QDII
QFII
USD investments
Chinese domestic
institutional
investors who want
to invest overseas
QDII version 2 (RQDII)
CIRC
Chinese domestic
insurance companies who
want to invest overseas
Mutual
recognition
platform
Reciprocity agreement between China and HK which permits
recognised Hong Kong funds to be marketed in China and
recognised China funds to be marketed in Hong Kong (in progress)
RQFII
RMB investments from HK, Taiwan, Singapore
and the UK etc.
Other offshore centres
Covering all your needs to benefit from QFII and RQFII Schemes
Core Asset Servicing
Hong Kong and Singapore Trustee
Investment Accounting & Fund Administration
Local Transfer Agency
Full RMB Servicing
Open Architecture with Local
Custodians in China
Dealing Services
Derivatives Clearing
Fund Dealing Services
Servicing in your time zone and your language
Client’s choice of China onshore custodian
Value Added Services
Middle Office Outsourcing
Investment Reporting and Performance
Cash Management and Foreign Exchange
Collateral Management
Security Lending and Borrowing
360 Solutions for Asset Owners
Robust and flexible QFII suite of services with
Asian competitive edge for asset owners
Un-matched offering in terms of asset
segregation and protection
High touch, consultative service approach
Servicing in your time zone and your language
All About RMB｜24
Equity
Asset owner
Marketand asset manager custody services
Investment Compliance
Global and Local Clearing
and Settlement
End-to-end service model for setting up RQFII
and QFII funds
Enhance distribution reach via BNP Paribas
SIF/QIF/Cayman fund service model
Global Custody
Dealing, Clearing and
Custody Services
360 Solutions for Asset Managers
4. Onshore FIEs
What extra
accesses
would I have
with an onshore entity?
With some further qualification, investors setting up onshore entities will have an easier access
to the RMB markets without the constraints of quota. Some products are also only available
onshore where the interest rate level tends to be higher than offshore. Bank deposits and
structured investment products yield much higher returns than offshore RMB deposits.
Nevertheless the onshore regulatory environment can be quite complex to navigate and one
must be aware of the constraints of operating under the supervision of the Chinese authorities.
Who are the Chinese regulators?
Banks
(branch, locally incorporated banks);
Trusts
Insurance / reinsurance companies
Security firms and Asset Managers
China Banking
Regulatory Commission (CBRC)
China Insurance
Regulatory Commission (CIRC)
China Securities
Regulatory Commission (CSRC)
Industry
Regulators
The three regulators provide licensing and approve new product launches in the industry
What extra access would I have with an onshore entity?
People's Bank of China (PBoC) regulates money market, control and licensing of the RMB market
Central
Bank
National Association of Financial Market Institutional Investors (NAFMII)
regulates China’s over-the-counter market under PBoC supervision
State Administration of Foreign Exchange (SAFE) regulates all FX market and administrate FX system
How to set up an onshore entity – FDI policy
Encouraged
& Permitted
Foreign
Investment
Foreign
Investment
Project
Restricted
Foreign
Investment
Project Approval
FIE Approval
≥$500 mio
State Council
MOFCOM
$300 mio to $500 mio
NDRC
MOFCOM
<$300 mio
Local DRC
Local Commerce Authority
≥$100 mio
State Council
MOFCOM
$50 mio to $100 mio
NDRC
MOFCOM
<$50 mio
Local DRC
Local Commerce Authority
Forbidden Foreign Investment
All About RMB｜25
Source: BNP Paribas
Source: BNP Paribas
Obtaining government approval
General Approval Process of Inbound FDI for joint ventures, WOFE or other corporate structures
Foreign Investor
Chinese Partner
Step 1
Applicant
Letter of Intent
and Cooperation Agreement
(Chinese party to the JV;
foreign investor for WOFE)
(if applicable)
Anti-Monopoly Review
(MOFCOM) (if applicable)
National Security Review
Step 3
(Ministerial Panel) (if applicable)
Pre-Approval of Land-Use Rights
Opinion on Planned Location
Environmental Impact Assessment
Approval for the Use of State Assets
or State-Owned Land-Use Rights
(Land and Resources Dept)
(if applicable)
Step 2
(Planning Dept)
Name Pre-Approval
(Environmental Protection Dept)
(AICs)
(SASAC) (if applicable)
Step 5
Step 4
Consultation with Industry
Regulator and Qualified
Consultation Institution
Approval of
Project Proposal
(DRCs)
Step 7
Approval of Related Contracts, Articles
of Association, and Formation of FIE
(MOFCOM)
Step 6
Registration of Enterprise (AICs)
Pre-Approval / Licence from Industry Regulator
(if applicable)
Source: BNP Paribas
Fixed Income
Onshore products available through BNP Paribas (China) Ltd
Time deposits range from 3 months to 5 years
Call deposits range from 1 day to 7 days
Structured investment products linked to international indices
Interest Rate Swap in CNY
Cross Currency Swap in CNY
FX products in CNY
In order to access the securities market onshore, Foreign
Invested Enterprises (FIEs) need to obtain qualification from the
relevant regulators
All About RMB｜26
What extra access would I have with an onshore entity?
Example of products available only onshore
BNP Paribas Investment Partners’ joint venture:
Funded in 2003 - one of the first joint ventures in China
BNP Paribas Investment Partners
For institutional clients
A range of 23 Mutual Funds
We manage:
Active management of equities
enterprises’ annuities
Passive management of equities
segregated accounts
Fixed Income
national social security fund totalling
Money Market
Over 100 accounts valued at more than USD 6.5 billion
Balanced Solutions
More than USD 3.65 billion
A large set of investment opportunities provided onshore
Equity
From Stock Picking to Passive :
Focus on quality
Solid choices to invest in
Chinese Bonds:
Broad range of choices to invest in equity :
Long Term investment in government and
from active to passive
corporate bonds, focus on stable returns:
33 investment professionals specialising in
Stable Interest Enhanced Strategy
equities
Medium term investment in government
Alpha strategies aim to invest in quality
and corporate bonds: Solid Gain Fixed
growth companies
Example of products available only onshore
Fixed Income
Money Market
Cash Management and
AAA Fitch Rated solutions
Income
Balanced
From Flexibility to Income:
Strategies vary from flexible asset allocation
HFT Liquid Money: the only fund to have a
between equity and fixed income to Income
AAA Fitch rating, backed by an asset
Management strategy (Retirement Income
manager “High Standard” (CHN) rated
Balanced, Income Growth)
All About RMB｜27
Appendix
Glossary of useful terms
Currency Abbreviations
Abbreviation
Full Name
Definition
CNH
Offshore Chinese Yuan in HK
An acronym for offshore deliverable Chinese Yuan traded outside China; Trade
settlement process in Hong Kong
CNS
Offshore Chinese Yuan in Singapore
An acronym for offshore deliverable Chinese Yuan traded outside China; Trade
settlement process in Singapore
CNT
Offshore Chinese Yuan in Taiwan
An acronym for offshore deliverable Chinese Yuan traded outside China; Trade
settlement process in Taiwan
CNY
Chinese Yuan
CNY is the International Organization for Standardization code for the currency
RMB
Renminbi 人民幣
“Renminbi” is the Chinese pronunciation.
Investors Abbreviations
Abbreviation
Full Name
FIE
Foreign Invested Enterprise
JV
Joint Venture
WOFE
Wholly Owned Foreign Enterprise
QFII
Qualified Foreign Institutional Investor
RQFII
RMB Qualified Foreign Institutional Investor
Three Types of Institutions
Foreign central banks, RMB clearing banks in HK and Macau, Offshore RMB trade settlement banks
QDII
Qualified Domestic Institutional Investor
Onshore RMB Regulators
Abbreviation
Full Name
Definition
Implications for Investors
CBRC
China Banking Regulatory Commission
Regulates China’s banking institutions
Regulates FIE (Foreign Invested Enterprise)
RMB fund raising approval
CSRC
China Securities Regulatory
Commission
Regulates China’s securities markets
In charge of qualification approval of QFII
and RQFII
CIRC
China Insurance
Regulatory Commission
CSDCC
China Securities Depository and
Clearing Corporation
Manages securities investors accounts
Provides custodian/settlement services for
QFII investments in exchange bond market
CCDC
China Central Depository and
Clearing Corporation
Centralized depository and settlement for
the interbank bond market. Manages type C
Special RMB account for bond investment
In charge of bond transaction settlement
for interbank bond market
DRC
Local Level Development and
Reform Commission
MOF
Ministry of Finance
National agency which administers
macroeconomic policies and the national
annual budget. It also handles fiscal policy,
economic regulations and government
expenditure for the state
Regulates capital investment of RQFII and
Three Types of Organizations
MOFCOM
Ministry of Commerce
National executive agency responsible for
formulating policy on foreign trade, export
and import regulations, foreign direct
investments negotiating trade agreement,
etc
Manages FDI (Foreign Direct Investment)
approval in large volume
In charge of approval for FIE (Foreign
Invested Enterprise) RMB fund raising
through issuance of CNH bonds and
shareholder loans
NAFMII
National Association of Financial
Market Institutional Investors
A self-regulatory organization which
regulates China’s over-the-counter market
under PBoC supervision
In charge of registration for FIE (Foreign
Invested Enterprise) RMB fund raising
through issuance of CNY bonds
NDRC
National Development and
Reform Commission
Studies and formulates policies for economic
and social development, maintains the
balance of economic development, and guides
the restructuring of China's economic system
In charge of project approval for FDI
(Foreign Direct Investment) in large volume
and regulates capital investment of RQFII
and Three Types of Organizations
Regulates the Chinese Insurance products
and services market and maintains legal and
stable operations of insurance industry
In charge of project approval for Chinese
domestic insurance investing overseas
All About RMB｜28
Glossary of
& Terminology
useful terms
In charge of project approval for foreign
direct investment in small volume
Onshore RMB Regulators
Abbreviation
Full Name
Definition
Implications for Investors
PBoC
People’s Bank of China
Chinese central bank which controls
monetary policy and regulates financial
institutions in China
In charge of RMB internationalisation project
In charge of qualification approval of
foreign central banks, RMB clearing banks
in HK and Macau and offshore RMB trade
settlement banks (Three Types of
Organizations)
Regulates capital investment of RQFII and
Three Types of Organizations and
Regulates FIE (Foreign Invested Enterprise)
RMB fund raising approval
SAFE
State Administration of
Foreign Exchange
Regulates foreign exchange administration
system and manages the country’s foreign
exchange market
In charge of quota approval for QFII
Regulates FIE (Foreign Invested Enterprise)
RMB fund raising approval
Regulates FIE FX payments and guarantee
SAICs
State Administration of
Industry and Commerce
Ministerial level agency which is responsible
for market supervision/regulation and law
enforcement through administrative means
In charge of registration of FDI (Foreign
Direct Investment) enterprises
SASAC
State-Owned Assets Supervision
and Administration Commission
Performs investors’ responsibilities,
supervises and manages the assets of the
state-owned enterprises under the
supervision of Central Government
In charge of approval for FDI (Foreign
Direct Investment), use of state assets or
state-owned land-use rights
SHCH
Shanghai Clearing House
Provides centralized clearing services for
spot and derivatives transactions in RMB
and foreign currency as well as RMB
cross-border transactions
In charge of clearing and settlement
interbank bond market
Manages registration of indirect settlement
member accounts for investors
CFETS
China Foreign Exchange
Trade System
A sub-institution of People's Bank of China
that supervises interbank lending, bond and
FX markets
Manages investors' trading account
registration and interbank bond and
FX transaction
Onshore Bond Issuing Entities
Abbreviation
Full Name
Definition
CDB
China Development Bank
A financial institution in China led by a cabinet minister level Governor, under
the direct jurisdiction of the State Council. It is one of the three policy banks in
China. Its primary responsibility is raising funding for large infrastructure
projects. Regulated by People's Bank of China (PBoC) and China Banking
Regulatory Commission (CBRC).
ADBC
Agricultural Development Bank of China
A state-owned agricultural policy bank under the direct administration of the
State Council. Its main task is raising funds for agricultural policy businesses.
ADBC's business is under the regulation and supervision of the People's Bank of
China (PBoC) and China Banking Regulatory Commission (CBRC).
EXIM Bank
Export - Import Bank of China
One of three policy banks in China chartered to implement the state policies in
industry, foreign trade, diplomacy, economy, and provide policy financial
support so as to promote the export of Chinese products and services.
Regulated by People's Bank of China (PBoC) and China Banking Regulatory
Commission (CBRC).
Glossary of useful terms
Offshore RMB Actors and Systems
Abbreviation
Full Name
Definition
CHATS
Clearing House Automated Transfer System
A computer-based system established in HK for the electronic processing and
settlement of interbank fund transfers. CHATS operates in a RTGS (real time
gross settlement) mode between banks in HK and is designed for large value
interbank payments. In Hong Kong, cross border/domestic RMB payments are
cleared via CHATS
HKMA
Hong Kong Monetary Authority
Maintains currency stability within the framework of the Linked Exchange
Rate system, promotes the stability and integrity of the financial system and
manages exchange fund
RTGS
Real Time Gross Settlement
Funds transfer systems where transfer of money or securities takes place from
one bank to another on a "real time" and on "gross" basis
CNAPS
China National Advanced Payment System
China’s current payment system for nationwide interbank system and for
cross boarder RMB payment clearing
CIPS
China International Payment System
China’s future international payment system
All About RMB｜29
Contact us
RMB Competence Centre
Julien Martin
Head of RMB Competence Centre
BNP Paribas
Add 62/F, Two IFC, 8 Finance Street, Hong Kong
Tel
+ 852 2909 8811
Email [email protected]
BNP Paribas Investment Partners
Emmanuelle Wilbrod
Investment Specialist – Asian equities
BNP Paribas
Add 31/F, Three Exchange Square,
8 Connaught Place, Central, Hong Kong
Tel
+ 852 2533 2208
Email [email protected]
Global Equities and Commodity Derivatives
Hugo Leung
Head of Global Equities and Commodity Derivatives (Greater China)
BNP Paribas
Add 60/F, Two IFC, 8 Finance Street, Hong Kong
Tel
+ 852 2825 1826
Email [email protected]
Fixed Income
Simon Chiu
Head of Institutional Credit Sales Asia
BNP Paribas
Add 63/F, Two IFC, 8 Finance Street, Hong Kong
Tel
+ 852 2108 5708
Email [email protected]
BNP Paribas Securities Services
Angely Yip
Sales Director - Asset Owners and Asset Managers- North Asia
BNP Paribas
Add Pccw Tower Taikoo Place, 979 King’s Road
Tel
+ 852 3197 3548
Email [email protected]
Connie Mak
Head of Relationship Management - North Asia
BNP Paribas
Add Pccw Tower Taikoo Place, 979 King’s Road, Hong Kong
Tel
+ 852 3197 3376
Email [email protected]
Disclaimer
This document is CONFIDENTIAL AND FOR DISCUSSION PURPOSES ONLY and does not constitute an offer or a solicitation to engage in any trading strategy, to purchase or sell any financial instruments, or
to enter into any transactions, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever. Given its general nature, the information included in this
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providing this document, BNP Paribas gives no financial, legal, tax or any other type of advice to, nor has any fiduciary duties towards, recipients. Certain strategies or potential transactions discussed in
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amongst other things, investment strategies or objectives of the Financial Instrument(s) and material market and economic conditions, including interest rates, market terms and general market
conditions. The different strategies applied to the Financial Instrument(s) may have a significant effect on the results portrayed in this document. Investors may not get back the amount they originally
invested. The performance data, as applicable, reflected in this document, do not take into account the commissions, costs incurred on the issue and redemption and taxes.
BNP Paribas Investment Partners Asia Limited, 30/F Three Exchange Square, 8 Connaught Place, Central, Hong Kong. BNP Paribas Investment Partners Asia Limited is a member of BNP Paribas Investment
Partners. “BNP Paribas Investment Partners” is the global brand name of the BNP Paribas group’s asset management services (BNPP IP). The individual asset management entities within BNP Paribas
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BNP Paribas SA is incorporated in France with limited liability and is authorised by the Autorité de Contrôle Prudentiel and regulated by Autorité des Marchés Financiers
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www.bnpparibas.com © BNP Paribas. All rights reserved.
All About RMB｜30
Glossaryus
Contact
& Terminology
This document makes reference to certain financial instruments (the “Financial Instrument(s)”) authorized and regulated in its/their jurisdiction(s) of incorporation. No action has been taken which would
permit the public offering of the Financial Instrument(s) in any other jurisdiction, except as indicated in the most recent prospectus, offering document or any other information material, as applicable, of
the relevant Financial Instrument(s) where such action would be required, in particular, in the United States, to US persons (as such term is defined in Regulation S of the United States Securities Act of
1933). Prior to any subscription in a country in which such Financial Instrument(s) is/are registered, investors should verify any legal constraints or restrictions there may be in connection with the
subscription, purchase, possession or sale of the Financial Instrument(s).
In particular, the BNP Paribas Cayman Investment Funds SPC – China RMB Bond Fund Segregated Portfolio (“BNPP China RMB Bond Fund”), Flexifund Equity China “A”, Flexifund Equity China “A” Fund of
Funds, Flexifund Short Term RMB and Flexifund Bond RMB referred to in this document are not authorised by the Securities and Futures Commission and hence not available to Hong Kong retail investors.