China tightens controls on currency trades

China’s regulators are tightening control over the inner workings of its currency market, pressuring banks to trade less and in smaller ranges, two banking sources told Reuters, as part of a sweeping push to curb speculation.

And China’s hidden local government debt has swelled to more than half the size of the economy, say economists at Goldman Sachs. They say the government will need to be flexible in dealing with this as revenue is already under pressure due to a slowdown in land sales.

The total debt of local government financing vehicles rose to about 53 trillion yuan (HK$63.82 trillion) at the end of last year from 16 trillion yuan in 2013, the economists wrote in a report.

That’s equal to about 52 percent of gross domestic product and is larger than the amount of official outstanding government debt.

Japan’s Government Pension Investment Fund will not invest in Chinese government bonds due to settlement and liquidity issues, even after they will be included in a major bond index next month.

The world’s largest pension fund, with total assets of 193 trillion yen (HK$13.48 trillion), said it will stay out of yuan bonds after FTSE Russell’s World Government Bond Index starts to include Chinese bonds from October.

In recent years, Chinese government bonds have been increasingly accepted by international investors as the market has grown in size and they offer decent yields compared with the developed markets.

Reuters and Bloomberg

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