Current tight liquidity within China’s financial system is due to regulations aimed at clamping down on the thriving Rmb-dollar carry trade and limiting banks’ investments in trusts, with the central bank extremely reluctant to intervene to alleviate the liquidity crunch. Mounting pressure may force it to act against its will, however.
The latest data indicates that Document 8 – an official regulation that seeks to reduce risks in China’s massive shadow financial system – has not had an impact on issuance of trusts.
China’s underground banks face a challenging 2013. Research by China Confidential in late April found that 35% of investors who have placed money with the underground banks plan to pull out funds in the coming year.
Trading in RMB grows
As China continues to internationalise its currency, a small but growing number of multinationals are now using renminbi in cross-border trade.
Denise Law is a researcher for Renminbi Compass in Hong Kong. (4m 13sec)
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