The Politics of China’s Currency Internationalisation: Regional Renminbi Hubs
China at a Cross-Roads, DIIS Conference Dr. Winnie King
[email protected] of Bristol
2016
Restructuring with Chinese Characteristics
Assessing nature of what ‘Crossroads’ China is facing necessitates understanding:
• Why does China do what it does?• What are China’s concerns?• Where does the market come in?
• Government Intervention vs Market Mechanisms• What can it offer?
• What can we expect?• Re: Currency and Capital Flows
• RMB hubs as a lens of explanation
Motivations (Why does China do what it does?)
Currency Internationalisation in Economic Restructuring & Macroeconomic rebalancing
• Lessons of 2008 GFC Diversification of Risk; Economic Structure; Dollar Hegemony
• Supporting Development Strategy (restructuring economy [supply-side reform], access to resources, right kind of infrastructure, right kind of investment )
• Security Considerations of Growth and Diplomacy (aid & alliances; securing resource and access (One Belt One Road))
Risks (What are China’s concerns?)
Risk of Currency Internationalisation in Economic Restructuring & Macroeconomic rebalancing
• Vulnerability of capital accounts flows (Responding to 2008; learning from 1998 Asian Financial Crisis)
• Regulations and governance of monetary policy
• Currency management (stability)
• Ignoring this in the face of changing economic context:• Rising cost of labour: up 60% since 2009;; middle income trap; inequality• Rise of alternative destinations for investment and growth in
China’s ‘traditional’ labour intensive manufacturing sector: ASEAN
RMB Hubs:Where does the market come in?
and What does it offer?
Traditional preference for government intervention over the market mechanisms
• Strong historical, ideological and socio-economic roots
But reform necessitates a greater role for the market
• RMB hubs as strategically selected infrastructure
• -- for Traditional Economy and New Economic Sectors
• -- for Currency Internationalisation
• -- as a testing ground
• The political and economic logic onshore/offshore rationale
Contribution to New Economy
• Niche—Cross-Strait Trade & Investors (Greater China politics)
• Resource Pooling (deepening integration)
• Development and expansion of new financial instruments and tools (Formosa Bond)
• ODI
• Institutionalisation of regional financial networks, collaboration and cooperation on regulations, laws, normal practice
• Niche—world financial centre (expertise; time zone; innovation)
• Upgrading of China’s Financial System and beyond (‘13-5’)
• Resource Pooling
• Funding [PBoC bond (2015); RMB denominated UK govt debt (2014)]
• Greater Transparency
• RMB denominated debt
• ODI/FDI (‘13-5’)
• Taiwan London
Currency Internationalisation and State Legitimacy (What can we expect?)
Rebalancing Economic Structure (‘13-5’)
Securing and Expansion of Renminbi Market Access (Onshore/Offshore ‘Connect’)
• Transformation both China’s and Hub’s asset holdings
• Shift between government intervention and allowing market to dominate
• August 2015• Managing expectations (domestic and international)• Improved communication
• Win-Win under a ‘New Normal’more opportunities, more volatility, slower profits, maturing management