Brexit: reaction from China

Beijing

China’s primary money rates rose marginally on Friday but treasury futures were up sharply in an initial sign of a flight to safety as investors digested Britain’s unprecedented decision to leave the European Union. Below is a timeline of reactions as the result became clear.

Ten-year treasury futures for September 2016 were up 0.4 per cent at the open of the afternoon trading session, and were on course for their sharpest one-day gain since May 9.


By contrast, money markets were relatively subdued following the central bank’s net weekly injection of 340 billion yuan (Dh189.78bn) – a two-month high, according to Reuters.

The volume-weighted average rate of the benchmark seven-day repo traded in the interbank market, considered the best indicator of general liquidity in China, was 2.3775 per cent, or 3.76 basis points higher than the previous day’s closing average rate.

Timeline of reactions to UK decision to leave European Union:

All times UAE

3.10pm

Speaking in during a trade visit to China, India’s finance minister Arun Jaitley said in Beijing: “The impact on India, one because of global integration certainly on the markets and currencies react disproportionately as we have seen.

“ It then settles down. Now instead of one entity we have to deal with two. The future of both markets and currencies would depend not on these external shocks but on the strength of the real economy. If the strength of your economy is sound then the impact of this beyond the initial few days get diluted.

“At best it might become a transient which reverses itself in due course.”

Asked if the vote would hurt globalisation, the finance minister said: “Whether this is a trend against globalisation or it is a result of some transient factors or otherwise, I think it has to be analysed. But decisions like this certainly have at-least temporary cascading effect world over, which we have seen since this morning.”

“In structural terms the world will settle down. Instead dealing with one entity, in terms of trade we have do deal with two. With in EU system there will be more impact” with issues like security.”

1.28pm

China’s yuan slumped to more than 5-year lows on Friday, prompting the central bank to intervene to support the currency.

The yuan hit an intraday low of 6.6285 to the dollar at one point, down more than 0.7 per cent from Thursday’s close of 6.5795 and its weakest since January 2011 and

It later pared losses on suspected intervention and closed at 6.6140.

Traders said state-owned banks were offering dollar liquidity in the market during the day – a tactic the People’s Bank of China (PBOC) often employs when intervening in the currency market, Reuters said.

“Our mother has come!” exclaimed a trader at another Chinese commercial bank in Shanghai, referring to the nickname for the PBOC.

10.05am

The stock market in Hong Kong, a former British colony, went into a shock as news of Britain voting to leave European Union surfaced. Hong Kong stocks fell 5 per cent joining the worldwide slide in markets on Friday morning.

But stocks listed at the Shanghai exchange managed to resist the selling pressure slipping just 1 per cent. However, analysts said the market might slide further during the day as traders have not fully priced in the event.

The Hang Seng index in Hong Kong fell 4.7 per cent to its month’s lowest reaching 19,894 points in morning trade. The Hong Kong China Enterprise Index, which tracks companies based in Mainland China, dropped 4.6 per cent to 8,382.

The Shanghai Composite index at the Shanghai stock exchange index slid 1.2 percent while China’s blue-chip CSI1300 index slipped 1 per cent. The Singapore market dropped 2.4 per cent.

9.25am

“This Brexit vote will push Chinese companies to refocus on continental Europe. China will be forced to rethink the idea to have the City of London as a platform for the internationalisation of the RMB,” said David Gosset, the founder of the Euro-China Forum. “The biggest loser would be the City [of London]. The biggest winner could be Germany, already China’s number one trade partner in Europe”.

There was no immediate formal reaction from the Chinese government, which usually avoids to take a public stand on issues that it considers to be matters of “internal affairs” of other countries. But the Chinese foreign ministry will be closely watched for its reactions during the day.

9.15am

Jan Gaspers, an economist with the Mecator Institute of China Studies in Berlin said the “yes” vote to leave the European Union is going to lure away investors from Britain.

“Chinese investors will be highly reluctant to set up new operations in the UK. Many existing Chinese-owned businesses will even contemplate moving their operations to continental Europe,” he said. Besides, Britain’s exit would shrink the size of the common market in Europe, and to that extent hurt Chinese exporters.

China has been relying heavily on Britain to plead its case for equal market status with the European Union. Britain will no longer be able to serve Beijing’s purpose in this score, and Chinese companies would be much less obliged to use London as a gateway to Europe, Mr Gaspers said.

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