REPORT ON CHINA INTERBANK FX MARKET IN JULY 2004

Turnover continued to shrink slightly and market interest rates dropped before rising

In the 22 trading days of July 2004, the national interbank lending and bond market concluded 1.131 trillion yuan worth of trading from 6,043 deals, 9.19 percent less than the deals in the same period of last year. The average daily turnover in July was 51.416 billion yuan, down 40 percent year-on-year and 6.12 percent month-on-month. The supply of funds went from loose to tight, weighted interest rates in the market declined from the previous month and the Bond Composite Index went up slightly.

In the first seven months of 2004, the interbank lending and bond market recorded an accumulated turnover of 7.867 trillion yuan, including 936.220 billion yuan of credit lending, 5.523 trillion yuan of repo, 24.756 billion yuan of outright repo, and 1.383 trillion yuan of cash bond trading.

Lending rate moved upward and turnover shrank

In July, 642 deals of credit lending were concluded, with a turnover of 120.791 billion yuan, down 50 percent year-on-year and 23.53 percent month-on-month. The weighted lending interest rate opened the month at 2.27 and closed at 2.53, with a high of 2.53 and low of 2.12.

As compared with June, the eight tracked trading varieties of credit lending all saw a decline in interest rate. Among them, the 2-month variety took the biggest tumble, 18.06 percent. In terms of concluded deals and turnover, short terms below 1-month all shrank while the turnovers for 2- and 3-month rallied by 381.71 percent and 187.92 percent respectively.

Turnover of repo shrank and the interest rate bottomed out

In July 3,648 deals of bond repo, with a year-on-year rise of 21.5 percent, were concluded in the interbank market with a trading value of 824.579 billion yuan. The average trading value declined 28.89 percent year-on-year. Given the higher financing cost, financing volume of each deal was cut moderately. The weighted interest rate moved around 2.40 in the beginning of this month and closed July at 2.42. The highest and lowest points were 2.45 and 2.2 this month.

As compared with June, the interest rates increased for two varieties and declined for six varieties. The rises for overnight and 6-month were not more than 2 percent. Among the maturities below one month, the 21-day led the gainers in turnover with a rise of 58.71 percent year-on-year and 63.05 percent month-on-month. As for the long terms, 6-month had the biggest increase in turnover, with the year-on-year and month-on-month rises being 115.66 percent and 1165.95 percent respectively.

Outright repo was increasingly active and interest rate declined

In July, 92 deals of outright repo were concluded with a trading volume of 13.765 billion yuan. The average daily turnover was 626 million yuan, up 45.09 percent month-on-month. The weighted average interest rate dropped from 2.62 at the beginning of the month to a monthly low of 2.20 on July 19, closing the month at 2.48. The high of this month was 2.83.

In July, 41 varieties were traded. The 7-day and 1-month remained active with their turnovers up 75.41 percent and 31.12 percent respectively. The turnover for 2-month fell considerably.

Cash bond trading continued to shrink and the Bond Composite Index fluctuated

In July, the cash bond market sealed 1,661 deals valued at 172.007 billion yuan and the average daily volume was 7.819 billion yuan, down 61.51 percent year-on-year and 10.99 percent month-on-month. The trading was focused on 3- to 5-year as well as bonds with a duration under one year. The interbank Bond Composite Index fluctuated this month. It opened the month at 1149.44 and closed at 1151.35, reaching a monthly high of 1152.61 and a low of 1145.85.

In July, 122 bonds were traded. The newly issued 040003 outperformed the market with its turnover accounting for 25 percent of the grand total for treasury bonds. Though financial bond 03CDB22 ranked first in terms of turnover, its trading with underlying trading background decreased moderately.

Institutional financing

Compared with June, the size of institutional financing continued to shrink and the overall structure had little change. In terms of borrowing, city commercial banks and joint stock banks ranked first and second, with borrowing volumes of 470.234 billion yuan and 178.746 billion yuan, respectively. On the lending side, state-owned commercial banks and joint stock commercial banks remained the biggest lenders with 409.849 billion yuan and 381.151 billion yuan respectively.