Post on 26-Apr-2018
China Market Update
Tracy Ge
China Sales Head, Treasury & Trade Solutions
March 14th, 2017
Strictly Private and Confidential
Treasury and Trade Solutions
Table of Contents
Foreword 1
China Macro Economy Update 2
China Regulation Update 8
Citi China Overview 9
Recent Market Development and Citi Capabilities 10
Market Environment in China and Implication to Corporates
Despite of the challenging environment, the fast evolving China market also creates strategic opportunities for
multinationals operating and investing in China.
Challenges and Opportunities for Corporates
Market Development
1 Slowdown of economy growth
Stability of economic environment
Concerns on possible market uncertainty
FX Volatility
2 Declined value of RMB position
Optimizing currency mix and cash balance to fulfil working capital needs
Regulatory Reforms
3 Complexity in regulations
Fast pace of regulation changes
Different regulatory conditions across geography
Interest
Rate Fluctuation
4 Interest rate liberalization
Development of investment instruments
Uncertainty and risk of investment market
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1 Foreword
China Macro Economy Update
Monetary and Fiscal Policies: As China’s economic policy next year is likely to maintain the current policy framework
with fiscal policy leading the way, we believe commodity prices will be supported and China’s PPI reflation will continue
To support the economy, the target of central government fiscal deficit as a percentage of GDP was set at 3. Investment
is expected to support growth in 2017, with FAI growth rebounding to 9.1%, infrastructure investment to offset property
investment slowdown.
Exports and imports are expected to remain muted, and grow at -7.2% and -6.8% respectively. Meanwhile the Service
Sector and Retail expected to continue growing albeit possibly lower rate.
With 19th Party Congress taking place at the end of 2017, we expect policy to be driven by steady growth and stability.
GDP growth is projected at 6.5% in 2017.
However, reform agenda remains important, in particular SOE deleverage.
2017 Outlook – Key Themes
2 China Macro Economy Update
• The Official Manufacturing PMI accelerated significantly (51.6 from 51.3 in January (5th consecutive month above 51), much better than market
expectations) . Both production and market demand improved, demonstrated by the increase of production and new order index, by 0.6 ppt and 0.2 ppt, to
53.7 and 53 in Feb respectively.
• The external demand continued to improve, as both new export order and imports index notched up by 0.5 ppt to 50.8 and 51.2 in Feb, remaining in
expansionary territory for four consecutive months.
• The employment index continued to accelerate to 49.7 in Feb, while the rising merger and acquisition activities among SOEs could continue to exert
pressure on the labor market in the near term.
• The new economy and high-tech industries continue to expand at a fast pace, with equipment and high-tech manufacturing PMI posting 53.3 and 54.6 in
Feb, 1.7 ppt and 3 ppt higher than the average manufacturing industry activities, respectively.
• Non-manufacturing PMI fell by 0.4 ppt to 54.2 in Feb, suggesting that services activity still expanded, though the pace of growth has moderated
• As growth remains steady, this could imply the government will become more confident in addressing key priorities like deleveraging, controlling property
bubble, and tightening financial regulation, which could be the policy emphasis in the upcoming NPC to be opened on 5 March.
• Headwinds include increasing external uncertainties and rising domestic financial risks. Overly tight monetary conditions may slow real sector activities
and weigh on private firms’ investment decisions, which in turn may put a break on the current growth momentum.
Robust Growth Momentum Continues in Q1 Source: Citi Research – China Economics Flash – Feb 28th 2017
Manufacturing vs. Non-Manuf. PMI Employment Index
3 China Macro Economy Update
NPC Policy Targets and Priorities – 2017 is a Political Transition Year
• The growth target is set at around 6.5%, but the new job’s target has been raised to 11 million from 10 million over past three years.
• Fiscal deficit continues to be set at 3%, lower than Citi Research former estimates, but remains expansionary.
• The monetary policy will remain more prudent than last year, and CPI inflation has been targeted at 3%
• De-leveraging and de-overcapacity are still the key tasks, while de-inventory in housing market should be based on individual city’s specific condition.
• Strengthening financial regulation while promoting financial reform will be another task of the year.
• Broadly speaking, the key policy targets and priorities are in line with Citi Research's 2017 outlook, characterized by authorities pursuing steady
growth, strengthening financial regulation, and containing financial risks in order to ensure the successful opening of the 19th Party Congress in late
October and early November this year.
Source: Citi Research – China Economics Flash – March 5th, 2017
Premier Li Keqiang presented the government work report on March 5th — This report reviews the government work in
the past year and spells out concrete economic policy targets for 2017. Highlights:
Key Targets established by the government for 2017 Provincial Growth Targets
4 China Macro Economy Update
China Government Work Report Highlights
Premier Li Keqiang delivers the Government
Work Report during the opening session of the
NPS on March 5th, 2017.
(Source: China Daily)
5 China Macro Economy Update
FX Forecast Summary of FX Forecasts – G10 vs Asia
• FX reserves in China may have decreased by US$46.2bn to US$2.952bn in Feb. Citi Research estimates that
China’s export and import growth improved to 16.3%YoY and 22.4%YoY in Feb, respectively, and the trade surplus
may have widened to US$27bn
Source: Citi Research
6 China Macro Economy Update
Economic Forecasts 2016 - 2018
7 China Macro Economy Update
China Regulation Update
SAFE and PBOC QUOTA
RMB or USD
FX transaction
Cross Border Trade Payment
Cross Border
Pooling
Shareholder Loan
and Repayment
Capital Injection
Dividend
Repatriation
Cross Border Lending
from China to Overseas
8 China Regulation Update
Citi China Overview
1902 2007 2012 2013 2014 – 2015
Citi China Franchise Overview
Opened
branch in
Shanghai,
1st American
bank in China
One of the
first 4 foreign
banks locally
subsidiarized
with RMB
license
1st foreign bank to
launch onshore mutual
fund
1st foreign bank to set
up branch in SFTZ
1st foreign bank
approved by PBOC to
launch RMB cross
border paperless
payment solution
1st and the only foreign bank
elected as the Vice Chairman
of Shanghai Banking Associate
SFTZ Committee
1st bank approved by SAFE to
pilot FCY paperless payment
solution
One of the first 4 foreign banks
to obtain PBOC FTU license
Opened first Shanghai Branch in China in 1902
Covering 13 cities,158 million population and 25%
of GDP
Among the first batch foreign banks to become
locally subsidiarized in 2007
First global bank approved to prepare a sub-branch
in the China (Shanghai) Free Trade Zone
Citi employs more than 8,000 employees in China
Beijing
Dalian
Tianjin
Nanjing
Chengdu
Chongqing
Changsha Guiyang
Guangzhou
Existing Branch
Shenzhen
Hangzhou
Shanghai Wuxi
Representative Office
Lending Company
COE
Established Citi
Orient Securities
JV (33%)
1st global bank to
issue sole
branded credit
card in China
Proven track record in Innovation supported
by the global leading system and platform
‘2014 Innovation Award’ in Cross-Border
Cash Management Business by Shanghai
Municipal Government
‘Most Innovative Bank in Shanghai Free
Trade Zone (SFTZ)’ by China Business News
and Lujiazui Magazine
Fully understand China Market and Strong
Relationship with China regulators
Only foreign bank attending the closed-door
meeting with Premier Li Ke Qiang on China
deregulation initiatives
Trust advisor and direct member to the PBOC
development program of China International
Payment System (CIPS)
Best Global Cash
Management Bank in
China
2015
Best Cross-Border
Treasury Management
Bank in China
2015
The Asset, Triple A
Country Awards
2016
Global Finance World’s
Best Digital Banks
2016
2016 – 2017
Recognized as “Best Cross-border Treasury
Management Bank” by Lujiazui Magazine
and “Best Global Cash Management Bank”
by Top CFO Magazine, two leading Chinese
financial publications
10 nominated companies were approved by
SAFE Shanghai for FCY pilot programs
which 4 of the nominations were from Citi
One of the 1st batch of banks joining CIPS
1st global bank joining IBPS
1997
One of the
1st batch of
foreign banks
getting RMB
business
license
9 Citi China Overview
Recent Market Development and Citi Capabilities
Development of Payment System - CIPS Cross Border Interbank Payment System (CIPS) is a payment system that offers clearing and settlement services for participant banks’ RMB
cross border payments and trading. It brings RMB a step further to becoming a global trading currency, and CIPS makes RMB payment
transfers just as easy as those in dollars and euro.
As a leading market player in China, Citi is proud to be
picked by PBOC (People’s Bank of China, China central
bank) as one of the 1st-batch 19 direct participant banks.
Key Benefits to Citi’s Customer
Longer operation time and same day value: CIPS plans to
extend operation time (from CST 9am to 5am T+1) in 2017,
as part of its Phase II development plan. By then, CIPS will
cover most of the time zones around the world.
. Faster processing time: paying through CIPS largely shortens the end-to-end clearing time as CIPS will
consolidate and replace the existing multiple clearing houses / channels that process RMB cross border
payments today.
Higher STP: CIPS streamlines payment route, improving STP (straight through processing) and reducing
payment failure rates.
More secure and reliable: CIPS utilizes ISO20022 messaging standard and deploys SWIFT as a secure,
efficient and reliable communication channel for CIPS’s connection with SWIFT members.
10 Recent Market Development and Citi Capabilities
Development of Payment System - IBPS Inter-bank Payment System (IBPS) is a newly developed domestic RMB clearing system. It is a sub-system of China National Advanced
Payment System (CNAPS), that includes 1) High Value Payment System (HVPS), 2) Bulk Electronic Payment System (BEPS), and 3) IBPS.
IBPS processes transactions on real time basis, and settles the funds in batch at net amount. IBPS operates on 7*24 basis.
Clearing System High Value Payment
System (HVPS)
Bulk Electronic Payment
System (BEPS)
Inter-bank Payment
System (IBPS)
Support payment type RMB domestic RMB domestic RMB domestic
Transaction amount
limitation
No Limit <=50,000 RMB <=50,000 RMB
Working hour Working day 8:30 to 17:00 7x24 7x24
Settlement RTGS Batch processing with net
settlement
Real-time processing with
net settlement
Payment speed High High High
Payment response No real-time No real-time Real time
Beneficiary bank
information requirements
Detailed beneficiary bank
information
Detailed beneficiary bank
information
Can use bank short name
Cost High Low Low
11 Recent Market Development and Citi Capabilities
Paperless Solution
Citi Paperless Solution: Go Digital !
Cross Border Funds Transfer requires supporting documents to comply with regulatory requirements in China.
Document submission by courier is inefficient, inconsistent, not safe, and costly.
Key Benefit
▲Standardization and Streamlining: Client can use ONE same channel
(CitiDirect) for both payment instruction and supporting document upload
▲Digitization and Self Service: Client can upload documents via electronic
banking platform to avoid manual tracking
▲Efficiency and Effectiveness: Client can search the submitted documents
in CitiDirect for up to 90 days. All audit trails are available
Key Challenges
Different channel: Payment instruction via electronic banking system,
while supporting document via courier
Long processing time: Manual checking against original document
Possible delay of payment release due to delay or missing documents
during transit
Manual search and tracking of supporting documents
Bulky and costly document management: hard-copies, storage issue etc. Single Channel for both Payment Initiation and Document Submission
CitiDirect
Payment
Instruction
Supporting
Documents
Courier
CitiDirect
Payment
Instruction
Supporting
Documents
12 Recent Market Development and Citi Capabilities
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