Renminbi internationalisation is gaining momentum again
Helen Wong believes China’s continuing efforts to open up its financial and capital markets, and the trade boost that will come from the launch of the belt and road projects, will help the renminbi regain its momentum of going global
Renminbi internationalisation seemed to have slowed in the past year, but behind the scenes China continues to enhance its financial infrastructure so as to increase global usage of the renminbi.
The cross-border use of the Chinese currency decreased significantly in 2016. According to SWIFT, a network that banks around the world use to send and receive money, the value of international renminbi payments fell by nearly 30 per cent, and the renminbi is now the seventh-most active payments currency (it began 2016 in fifth place).
Offshore renminbi deposits tell a similar story. The stock of renminbi deposits outside mainland China has been shrinking since the beginning of 2015. Renminbi deposits in Hong Kong, the world’s largest offshore renminbi hub, totalled 528 billion yuan (HK$603 billion) at the end of April, nearly 50 per cent less than the peak of over 1 trillion yuan that were parked in Hong Kong at the end of 2014.
The decline in the using and holding of renminbi was not unrelated to concerns over China’s economic slowdown, the renminbi’s depreciation, and the tightening of cross-border capital flow regulations. Yet, against this backdrop, China ploughed ahead with renminbi internationalisation, widening the range of domestic assets that foreign investors can buy and sell.
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First, there is China’s stock market. Announced last August and launched within four months, the Shenzhen-Hong Kong Stock Connect allows international investors to trade the shares of smaller, more entrepreneurial companies, whose growth is a critical component of China’s economic reform. Via Hong Kong, investors around the world now have direct access to most of the listed companies that are traded on the mainland – an opportunity that was unavailable only three years ago.
Four reasons China is opening its bond market to the world
China’s rapidly expanding bond market is the world’s third-largest, but foreign participation has been limited: international investors own less than 2 per cent of China’s government bond market, compared to 10 per cent in Japan, over 25 per cent in the UK, and nearly 50 per cent in the US. The gradual opening up of China’s bond market will offer abundant opportunities to issuers, investors, and all the intermediaries in between.
Renminbi internationalisation: currency to grow in stature as China implements initiative
More importantly, the belt and road will increase the use of renminbi for financing. Chinese companies are participating in belt and road projects. These companies, with their renminbi-denominated balance sheets, will increase the pools of renminbi liquidity in the host countries. Furthermore, the belt-and-road-related infrastructure projects will increase demand for renminbi hedging.
Renminbi internationalisation may have slowed in the past year, but China has continued to open up its capital markets. Furthermore, over time, the Belt and Road Initiative will increase the use of the renminbi both as a trade and financing currency.
Helen Wong is HSBC’s Greater China chief executive
