China CITIC Bank International releases latest CNCBI Cross-border Banking Demand Index

China CITIC Bank International has announced that the 4Q2019 CNCBI Cross-border Banking Demand Index stands at a record low of 55.3 since the launch of the index, logging the second biggest quarter-on-quarter decline of 1.8, underscoring the brunt of the escalating China-US trade war on the mainland’s demand for Hong Kong’s cross-border banking services.

The bank has revealed that, except for derivative products, all the corporate demand sub-indices have fallen on the quarter. The asset management & financial consultancy and loans sub-indices show the sharpest dip of more than 2.0, while the currency transactions and bond issuance sub-indices also log a rather significant fall of between 1.0 and 2.0. The structured finance, settlement & cash management and trade finance sub-indices post a relatively softer slide of less than 1.0 whereas the derivative products sub-index rises 2.1.

Dr Liao Qun, the chief economist for the bank, has said as part of a press release that the trade war escalation not only adds pressure to China’s exports and economic growth but also leads the market to grow increasingly bearish on the global trade and economic prospects. The situation deals another heavy blow to mainland corporations’ “going out” aspiration, causing cross-border banking demand to weaken almost across the board.

Liao Qun continued, revealing that demand for asset management & financial consultancy falls the most as demand for currency transactions loses steam rapidly, demonstrating that service-oriented cross-border demand also weakens evidently. Surprisingly, demand for derivative products gains strength, while whether this is due to mainland corporations’ stronger drive to hedge against fluctuations in foreign markets as a result of the growing uncertainties in global trade and economy remains to be observed.

On the future, Liao Qun noted that the stability of demand from individuals hinges on the easing of the China-US trade war on the one hand and the upshot of Hong Kong’s social issues on the other.

In 4Q2019, the individuals and corporate sub-indices regarding their expectation of regulatory lossenless

fall by 2.7 and 0.5 respectively on the quarter. Dr Liao states that both corporations and individuals expect the central government to tighten cross-border regulations in an effort to control capital outflows amid the escalating trade war. Turning to their “going out” preferences, individuals are more sensitive to changes in the external environment and therefore expect tighter regulations. A partial and provisional trade truce between China and the US by the end of the year could loosen regulations. Otherwise, the regulatory environment would tighten further.