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Forum assesses prospects of RMB internationalization

By Matthew Fulco (China Daily Shanghai Bureau)
Updated: 2011-04-13 16:59

SHANGHAI - Leading financial analysts and policymakers assessed the prospects of renminbi internationalization and its ultimate impact on business in the Chinese mainland and Hong Kong at a forum Tuesday.

The Shanghai International Financial Forum was the second in a series of biannual events exploring China's rising importance in global finance. The forum was jointly held by the European Chamber of Commerce and Financial Services Office of the Shanghai Municipal Government.

The event highlighted the centrality of renminbi internationalization to Shanghai's goal of becoming a global financial center by 2020, a policy objective announced by the State Council - China's Cabinet - in March 2009.

Shanghai was ranked the world's eighth most competitive financial center last year in the IFCD Index, a report issued jointly by Xinhua and Dow Jones. As China's economic hub, Shanghai has the nation's largest stock exchange and is a preferred location for the regional headquarters of multinational companies.

Key speakers at the forum included leaders from the City of London - the British capital's financial district, the Shanghai Stock Exchange and major international banks operating in China.

Alderman Michael Bear, Lord Mayor of the City of London, emphasized that internationalization of the Chinese currency would open new doors for Shanghai. The City of London, he said, hopes to ultimately act as an offshore center for renminbi trade.

When asked if Shanghai would compete with London as a global financial center, he said, "The way we look at the overall market, Shanghai's success is our success."

Ma Jun, Deutsche Bank's Chief Economist for Greater China, laid out three conditions for the renminbi to become a global reserve currency: large GDP, large trade volume and convertibility. He estimated that China's GDP and trade volume would surpass the US' in 2022 and 2016, respectively, to become the world's largest. He said that full convertibility of the yuan could be achieved within five years.

Ma emphasized Hong Kong's role as the most important offshore yuan center, suggesting that its flexible regulatory framework provides fertile ground for product innovation. As a part of China and home to many Chinese banks and businesses, Hong Kong is a low-risk test ground for renminbi internationalization, he added.

Ma predicted an upcoming surge in Hong Kong's yuan deposits. "We expect Hong Kong's renminbi deposits to rise five-fold to RMB 2 trillion in 2 years," he said. "The renminbi offshore market will be the single most important driver for Hong Kong's financial sector growth in the next five years."

Another of the forum's major topics was cross-border renminbi trade settlements, which began on a trial basis in Shanghai and four cities in Guangdong province in July 2009. With the success of the pilot scheme, it was expanded in June 2010 to 20 provincial regions. Total cross-border transactions settled in the Chinese currency reached $58.7 billion last year, 13 times the amount in 2009.

Leena Zhu, Director of Transaction and Wholesale Banking at Standard Chartered China, said the transactions were an opportunity for companies to both increase sales and control costs.

"If you are bidding on a big contract with a Chinese state-owned enterprise, you will be more competitive if you have renminbi capability," Zhu said. "In cross-border renminbi trade settlements, you also have more transparent pricing, which can help to improve supplier relationships, lowering costs," she added.

While presenting bright prospects for renminbi internationalization, the forum also addressed some challenges the process faces. "Investment tools are still limited, and it takes time for overseas networks to set themselves up for RMB clearing," said Janet Ming, Head of Corporate Sales and Global Transaction Services at Royal Bank of Scotland China.

Yet Ming ultimately struck an optimistic note. "Policymakers have clear objectives to promote the renminbi as a global currency for investment and trade," she said.