Markets are skittish, prone to starting at shadows or gorging themselves on rumours. Is China’s ‘counter-cyclical bounce’ just the latest piece of scuttlebutt to affect the currency or is the writing on the wall?
If traditional industries are the ground troops in the looming conflict, cross-border e-commerce platform Youkeshu is China’s militia. Its CFO talks trade warfare, hedging strategy and bank relationships.
In one month, China’s foreign exchange regulator has fined 48 corporates, banks and individuals. European chemistry giant Solvay, as well as HSBC, are on the list.
China’s leading optical device manufacturer has seen the equivalent of $29 million wiped out on the back of the renminbi’s devaluation. Meanwhile, the PBoC’s latest move is adding to its pain.
It's like nothing China's treasurers have seen in the past 10 years; a toxic combination of defaults, US rate hikes, a downturn at home, regulatory interference and trade tensions are killing bond issuance.
A 20% reserve requirement set by Chinese regulators on dollar/Rmb forward contracts has an instant impact. As predicted, futures contracts are moving offshore.
Treasurers tell CT what a return to the reserve requirement on forward trading – which puts the brakes on renminbi-US dollar forwards – will mean for their operations.
Fearing China's currency could plunge to Rmb7 or Rmb7.50 to the dollar, a treasurer hedged mammoth debts while staying in line with the principles of IFRS9.
A 7% slump in the renminbi's value as the winds of trade war blow has an unwanted consequence: 2016-style capital controls and difficulty in withdrawing money from the country.
