Foreign currency credit in China, Pure offshore transactions and attempts to reconcile BIS and PBOC data

While the author believes to have a decent understanding of G10 markets, he is not an EM specialist. Familiarity with the datasets used is thus tenuous at times and results, particularly sections towards the end, should for the moment rather be seen as hypotheses than affirmative statements. Criticism & feedback is welcome.

(Rough) Outline:

  • Compilation of foreign currency assets and liabilities by type and source
  • Pure offshore transactions
  • World ex-China exposure to Chinese non-financial corporations
  • Developments after the August mini-devaluation

Data:   

  • BIS: Local banking statistics (LBS); Consolidated banking statistics (CBS); Debt securities statistics
  • PBOC: Sources & Uses of Credit Funds of Financial Institutions (in FC)
  • MAS: External assets and liabilities
  • HKMA: External claims and liabilities

Foreign currency balance sheet of Chinese non-financial companies

Note: The following line of thought deems Chinese (CN) banks in aggregate unable to ‘carry trade’ due to regulatory constraints and more comprehensive oversight compared to non-financial corporations (NFCs). The net position of single banks surely fluctuates intraday to accomdate customer flows; quarter end on-balance & off-balance exposure is remarkably stable though, oscillating between -1% and +1% of total assets.

[Chart 1] is regularly presented in discussions about the size of foreign currency (FC) lending to CN companies.

1
[Chart 1]

While trends are accurately represented by this time series, quite a few adjustments would have to be made, as it includes superfluous categories and omits necessary ones, to attain an accurate picture of total FC lending to CN NFCs. The non-participation of CN in BIS statistic panels (more on this later) doesn’t facilitate the analysis, consequently it appears best to construct the FC balance sheet of NFCs in CN line by line. Continue reading “Foreign currency credit in China, Pure offshore transactions and attempts to reconcile BIS and PBOC data”

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Foreign currency credit in China, Pure offshore transactions and attempts to reconcile BIS and PBOC data