J.P. Morgan On Yesterday's Macro-Prudential Changes For The Yuan

J.P. Morgan doesn't see yesterday's macro-prudential shift from the PBoC as a game changer for CNY, see below.

"PBoC’s macro-prudential defense is mostly symbolic and is unlikely to have big real impact on inflows. The latest adjustment of the cross-border financing parameter belongs to the broader set of macro-prudential tools that the PBoC uses to manage systemic FX risks. While these measures are not new and have been frequently deployed during previous currency depreciation episodes, they tend to work less efficiently than direct/indirect PBoC intervention via reserves or CNY fixings in short-circuiting currency weakness. Especially in the current environment with external financing remaining much more costly than domestic borrowing, relaxation on cross-border financing restrictions is unlikely to attract much interest from corporates to lever up externally. In fact, since 2022, Chinese corporates have been paying down their external debt: the stock of their total external liabilities fell by over $55bn from 2021 highs, a trend we expect to have legs in 2H23. In the meantime, onshore FX loans have also been falling at a much faster pace than FX deposits since last year, pushing the FX loan/deposit ratio to post-GFC lows. This reflects the structural reluctance from corporates to tap external/USD financing given elevated costs, a behavior that is unlikely to change funamentally in the near term, despite the PBoC lifting the quota of external borrowing."