Diaoyus fallout sees China refocus RMB push to Australia, Canada
G. Bin Zhao says the economic fallout from the Diaoyus dispute with Japan means China is now looking at Australia and Canada for direct currency tradingas part of its push for renminbi internationalisation
On June 1, direct trading began between the renminbi and the Japanese yen, a step which will play a significant role in the process of China's monetary internationalisation. However, the recent Sino-Japanese dispute over the Diaoyu Islands has affected economic and financial co-operation between these two countries, as well as the process for renminbi internationalisation.
Therefore, it has become necessary for China to seek direct exchanges between the renminbi and other major currencies. This means the Australian dollar and Canadian dollar will become significant priorities. China is an important trading partner of both Australia and Canada; at the same time, Canberra and Ottawa have been hoping to strengthen their financial co-operation with Beijing.
The direct trading of the Australian dollar and the renminbi has more economic significance for Australia than China. Since 2007, China has been Australia's biggest trading partner; today, it tops the charts for both Australian exports and imports. Last year, bilateral trade amounted to A$114 billion (HK$913 billion), accounting for about 23 per cent of Australia's total trade, two-thirds of which was Australian exports to China.
Therefore, when China allowed direct trading between the renminbi and the yen, parties in Australia immediately expressed hope that the Australian dollar would be the third currency to be used for direct transactions, after the US dollar and the yen. Wayne Swan, Australia's treasurer, said at a meeting in Hong Kong in July that it was hoped the Australian dollar would realise an early direct exchange with the renminbi, thus greatly reducing bilateral trading costs. In a subsequent visit to Beijing, he expressed this wish to China's senior leaders.
Compared with the volume of Sino-Australian trade, the volume of Sino-Canadian trade is smaller, at US$47.5 billion last year. At the same time, China has become Canada's second-largest trading partner and third-largest export market.
From 2009 to the end of last year, investment by Chinese enterprises in Canada totalled C$16billion (HK$126 billion), and it will reach more than C$30 billion if the China National Offshore Oil Corporation acquisition of Nexen is approved. With China's rising demand for energy and resource products, investment in Canada must continue to increase; if its currency can be directly traded, Canada will become more attractive to Chinese investors.
In addition, China and Canada can consider promoting the establishment of an offshore renminbi business in Toronto. One of the reasons Japan is willing to conduct direct yuan-yen trading is that Japan, in addition to trade and investment demand, is looking forward to boosting the Tokyo financial market and nurturing an offshore market for renminbi financial product transactions.