SHANGHAI, Jun. 24 (SMM) –
Arbitrage Trade Falls 90%
Data from China Customs showed China’s exports in May only edged up 1% YoY, compared with the 14.7% growth in April, while the People’s Bank of China (PBOC) revealed China’s foreign exchange was up RMB 66.86 billion in May, down 77% from the RMB 294.35 billion in April, which is seen as the major cause of tightening liquidity in interbank market.
Collaboration of Bank and Foreign Exchange Authorities
The PBOC Hangzhou Branch issued document in late May, requiring all banks under its jurisdiction to secure pledges while issuing loans for enterprises settling entrepot trade in RMB, and approved banks to inquire related information about these enterprises through PBOC credit reference center if necessary.
Specifically, the PBOC required detailed documents, including the full set of bills of landing and warehouse receipts with real names, for any bank financing. Enterprises should provide related documents filed with the customs for settlement of trade within special customs supervising areas. Banks should endorse the documents in the above businesses.
Futures Markets Little Affected
That being said, futures markets have yet to be largely affected by the tightening regulations.
Goldman Sachs pointed out in a survey late May that the State Administration of Foreign Exchange’s (SAFE) crackdown resulted in sharp decline in copper financing and spot copper markets will have to see an additional inflow of 400,000 mt of copper in the short term.
However, copper stocks in Shanghai bonded area surged from 200,000-300,000 mt to 800,000-1,000,000 mt after traders’ aggressive financing trade through copper imports, while the number only fell some 100,000 mt following the inspection of the SAFE, and industry insiders said copper inventories in bonded area were at 500,000 mt.
Editing by SMM