Part 3 Financial Market Analysis
During the first half of 2017, the financial market as a whole functioned soundly. Interest rates in the money market generally moved up and liquidity was broadly stable. Against the backdrop of recovering fundamentals, the U.S Federal Reserve rate hike, and the moderate deleveraging in the domestic financial system, the bond market yield curve flattened and shifted upward, whereas the trading volume and the issuance of spot bonds declined. The stock indices remained generally stable, while the trading volume and the amount of equity financing continued to decline year on year. The growth of asset and premium income in the insurance sector moderated.
I. Financial Market Analysis
Money-market repo transactions rebounded, the share of transactions of overnight products fell, and market interest rates rose
Repo transactions on the inter-bank market rebounded and the growth rate of inter-bank lending continued to decline. During the first half of 2017, the cumulative turnover of bond repos reached RMB 275.7 trillion on the inter-bank market, representing an average daily turnover of RMB 2.2 trillion, a decrease of 4.5 percent year on year and an increase of 8.6 percent from Q1 2017. The cumulative turnover of inter-bank lending reached RMB 38.8 trillion, with an average daily turnover of RMB 315.6 billion, a decrease of 14.1 percent year on year and a decrease of 7.3 percent from Q1 of 2017. In terms of the maturity structure, the share of transactions of overnight products fell, as overnight repos and overnight lending accounted for 80.5 percent and 87 percent respectively of the turnover in bond repos and inter-bank lending during the first half of the year, shrinking by 5.9 percentage points and 1.3 percentage points respectively from the corresponding period of the previous year. The turnover of bond repos on the stock exchanges increased 28.5 percent year on year to RMB 127 trillion.
Table 9 Fund Flows among Financial Institutions in H1 of 2017
| Unit: RMB 100 million | ||||
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| Repos | Inter-bank lending | ||
| H1 2017 | H1 2016 | H1 2017 | H1 2016 | |
| Chinese-funded large banks① | -677,604 | -1,062,405 | -78,314 | -115,269 |
| Chinese-funded small- and medium-sized banks② | 109,966 | 202,445 | 3,552 | -414 |
| Securities institutions③ | 190,655 | 253,768 | 54,562 | 83,589 |
| Insurance institutions④ | -23,178 | 6,550 | 18 | 20 |
| Foreign-funded banks | 31,198 | 45,490 | 4,444 | 4,682 |
| Other financial institutions and vehicles⑤ | 368,963 | 554,151 | 15,739 | 27,393 |
Notes：① Chinese-funded large banks are the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Bank of China, the China Construction Bank, the China Development Bank, the Bank of Communications, and the Postal Savings Bank of China.
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② Chinese-funded small- and medium-sized banks refer to the China Merchants Bank and sixteen other medium-sized banks, small-sized city commercial banks, rural commercial banks, rural cooperative banks, and village and township banks.
③ Securities institutions include securities firms and asset management companies.
④ Insurance institutions include insurance firms and corporate annuities.
⑤ Other financial institutions and vehicles include urban credit cooperatives, rural credit cooperatives, finance companies, trust and investment companies, financial leasing companies, asset-management companies, social-security funds, mutual funds, wealth management products, trust plans, and other investment vehicles. Some of these financial institutions and vehicles do not participate in the inter-bank lending market.
⑥ A negative sign indicates net lending and a positive sign indicates net borrowing.
Source: China Foreign Exchange Trade System
In terms of financing among financial institutions, the flow of funds displayed the following characteristics. First, both Chinese-funded large banks and insurance institutions were net lenders. Specifically, net lending by large banks through repos and inter-bank lending totaled RMB 75.6 trillion in H1, whereas insurance institutions have been net lenders since Q3 2016, with net lending through repos and inter-bank lending amounting to RMB 2.3 trillion in H1. Second, other financial institutions and vehicles and securities institutions were the main net borrowers. In particular, net borrowing by other financial institutions and vehicles totaled RMB 38.5 trillion in H1, accounting for 49.4 percent of the total amount of net borrowing, 1.9 percentage points more than that in Q1; net borrowing by securities institutions posted RMB 24.5 trillion in H1, accounting for 31.5 percent of the total amount of net borrowing, 1.7 percentage points higher than that in Q1.
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Interest-rate swap trading was brisk. In H1, 61,192 RMB interest-rate swap deals were reached, an increase of 50.0 percent year on year, with the notional principal volume totaling RMB 5,534.38 billion, an increase of 26.7 percent year on year. In terms of the maturity structure, contracts with maturities of up to one year traded most briskly and the volume of their aggregate notional principal posted RMB 4,198.20 billion, accounting for 75.9 percent of the total. In terms of the reference rates, the 7-day fixing repo rate and the Shibor are the two major floating reference rates for RMB interest-rate swap transactions. The notional principal of the interest swaps with the two reference rates as benchmarks accounted for 88.9 percent and 10.9 percent of the total respectively.
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