Rmb internationalisation

China’s renminbi is becoming more attractive, despite not being freely traded. Hayden Briscoe, head of Asia-Pacific Fixed Income with AllianceBernstein, discusses with the FT’s John Authers why the currency is growing in popularity, and the risks and opportunities this opens.

Last week, data showed that the renminbi had overtaken the euro in the world of trade finance, something we thought looked a little out of place with real trade settlement.

On Tuesday, a fresh sign of fishiness appeared, after Chinese industrial production came in below expectations. 

By Simon Rabinovitch and James Fontanella-Khan

Just two weeks on from George Osborne’s promise to accord special treatment to Chinese banks to draw them to London, one of the biggest has inaugurated its new European headquarters – in Luxembourg.

The opening of China Construction Bank’s European office in Luxembourg is a reminder that for all the controversy surrounding Osborne’s regulatory concessions, there is still a big question about how successful he will actually be in persuading Chinese banks to scale up their London operations.

 

Even when China’s growth rate was falling, the renminbi continued to chug higher. This year’s emerging market sell-off barely caused a ripple, either.

Yet now, when China’s economy appears to be humming again (for now), BofA-ML has decide to come out with a relatively bearish note the currency. 

So, ICBC is to become China’s first mainland bank to issue an offshore renminbi bond in London. The launch, which should take place next month, is a further milestone in the development of the renminbi as an international currency, and demonstrates London’s growing role as the European time zone centre for renminbi trading

When Gao Hucheng, China’s minister of commerce unveiled the Shanghai free-trade zone (FTZ) in a low-key inauguration ceremony on September 29, those who had been overexcited by the prospect were tempered, and those who were afraid of it felt relieved – at least for the time being.

Why? The lack of big names at the event. 

By Eswar Prasad and Karim Foda

Last year was a calm one for the renminbi. China’s trade and current account surpluses fell below 3 per cent of GDP in 2012, suggesting that the economy was on its way to resolving its protracted external imbalances. Capital inflows eased off and capital outflows rose as the government liberalised controls on outflows. Net accumulation of foreign exchange reserves was just over $130bn, compared to $330bn in 2011 and an average of nearly $450bn per year in the four years preceding that.

But the surge in reserves in the first quarter of 2013 has put the renminbi is back in the spotlight. Rising capital inflows have led to a surge in accumulation of reserves as China’s central bank has attempted to fend off pressures for the renminbi to appreciate. 

It’s been nine months in the making. But on Tuesday Brazil and China finally sealed a R$60bn ($30bn) currency swap that was first proposed at last year’s Rio+20 earth summit.

While the swap carries enormous geopolitical and diplomatic symbolism – it essentially represents a monetary consummation of the growing trade between the two giants – in practice though, it will change little. 

It’s been a good nine months in gestation, so maybe next week’s Brics summit will be the right moment for China and Brazil to deliver their promised Rmb190bn ($30bn) currency swap.

Hong Lei, China’s foreign ministry spokesman, hinted as much on Friday when he said an agreement would be signed “soon”. 

Taiwan’s financial services industry enjoyed a landmark moment this week when cross-border renminbi trade settlement services were officially launched in the island state. The prize: the chance to create an offshore RMB market in Taiwan to mirror that of Hong Kong. 

The dim sum bond market is one where “firsts” seem to come along with alarming regularity. It’s hardly surprising – the market is only three years old. But many of those firsts are either technical, incremental or, frankly, not that interesting.

However, here’s a potential new thing that looks well worth some attention: the first non-Chinese government body to raise money with a dim sum bond. 

As China grows in economic and political influence, Beijing is determined to turn the renminbi into an international force that might one day rival the US dollar as the world’s most important currency. The FT’s Simon Rabinovitch examines the motives and methods of the internationalisation of the RMB.

Buying banks is “no rose garden. We consider it a battleground”. So says Jiang Jianqing, president of China’s ICBC, the world’s biggest bank (by market capitalisation, deposits and credits).

So far, his takeover of 80 per cent of Standard Bank Argentina appears to have been more genteel – after all, ICBC has a stake in Standard Bank Group in South Africa. 

By Qu Hongbin of HSBC

As the west wobbles, all eyes are now on China to see what the country’s new leaders will do to stimulate the economy.

While we have little doubt that policy makers will gear up their monetary and fiscal easing, focusing on short-term stimulus misses a far more important trend – a swathe of co-ordinated reforms that will revolutionalise the country’s financial system over the next three to five years. 

By Eswar Prasad and Karim Foda

The renminbi is in the spotlight again. The US Presidential election campaign features both candidates vowing to be tough on China, with Mitt Romney promising to “call China a currency manipulator on day one” if elected.

In fact, based on data for this year, there isn’t a strong basis for a charge of currency manipulation. Meanwhile, with growth slowing and the leadership transition taking many unexpected twists, there are concerns about capital flight from China that could also have implications for the renminbi.