Expanding the usage of RMB along the Belt and Road Initiative

Expanding the usage of RMB along the Belt and Road Initiative

Xu Hongcai
Deputy Chief Economist of China Center for International Economic Exchanges (CCIEE)

Distinguished President Suma, Good Morning, Everyone.
Thank you very much for Mr. Charles’ introduction. It is an honor to participate today’s Seminar jointly hosted by PBOC and EBRD. Personally, I have special connectivity with both institutions. Twenty years ago, I worked at PBOC. Two years ago, Dr. Hans Peter, the chief economist of EBRD visited me in my office. We reached consensus to deepen bilateral cooperation between EBRD and China. After this meeting, I immediately wrote a report to Premier Li Keqiang to suggest China’s government invest the EBRD as a shareholder. Li Keqiang immediately agreed with me. It is this story to lead to the cooperation between EBRD and PBOC. As a witness, I am more honored to be here to introduce my views on expanding the usage of RMB along the Belt and Road Initiative.
In the past few years, international capital flows and exchange rate volatility increased the exchange rate risk of the project along the Belt and Road. At present, as an international reserve currency, the RMB still cannot match China's economic status in current world economy. In this sense, accelerating the pace of RMB’s internationalization is an inherent demand of China's economic development and an international community that requires China to take on more responsibilities. Therefore, it can help enhance the financial stability of the world. To archive this, I have five proposals to promote the RMB’s usage along the B&R.
Firstly, develop the Panda bonds market. More than 10 years ago, specific international financial institutions within the territory of China are permitted to issue its first Renminbi-denominated Panda bonds. However, the issuance of Panda bonds has been comparatively slow. In the recent years, the Panda bonds has reached some good momentum for itself, but it still cannot meet the actual needs of current international economic cooperation. In the past few years, the RMB has slightly depreciated against the dollar. This year, the Fed increased its Federal Funds rate twice. In near future, the Fed is expected to raise its interest rates again. So, the spreads of interest rate between China and the US will be narrowed. It is a favorable time to issue RMB-denominated bonds. International enterprises involved along the B&R should be encouraged to issue Panda bonds in the interbank market in Shanghai as a manner to finance their projects under the B&R Initiative framework.
Secondly, launch the international board market in Shanghai Stock Exchanges as soon as possible. The construction of Shanghai as an international financial center with international influence by 2020 is China’s national strategy and there are only a few years to go. But the Shanghai international board market has not been introduced yet, which does not fit Shanghai’s role as an international financial center. Overseas enterprises along the B&R should be encouraged to issue RMB-denominated stock and to be listed in Shanghai stock market. Public companies that have already listed in Hong Kong or New York stock exchanges should have priorities to be listed in the Shanghai Stock Exchanges.
Thirdly, launch the Renminbi-denominated international oil and iron ore futures in Shanghai as soon as possible. Some preparation has already started earlier, but the progress has been slow. At present, China is the biggest import country in the world for oil and iron ore, but China has relatively weak influence on pricing these commodities, which is because of the low level of RMB internationalization. This increases systemic financial risks of the global economy. It is foreseeable that the proposed international oil futures and iron ore futures in Shanghai would be a breakthrough that will surely enhance Shanghai's status as an international financial center, and strengthen its financial cooperation with London, and New York.
Fourthly, make Urumqi of Xinjiang a regional financial center. In recent years, Xinjiang has made hard efforts to speed up its international financial center construction. These efforts try to make Urumqi into a modern international city, improve its internationally competitive financial environment, and enhance the communication and coordination of security mechanisms in the region. It is important that Urumqi continues its effort to boost up its strategic importance as a regional financial center. More policy support and flexibility should also be given to help attract more financial institutions and financial professionals to locate in Urumqi along the B&R. Along with the financial market in Shanghai, Urumqi could better serve the international economic cooperation along the B&R.
Finally, develop offshore RMB business network to steadily promote the RMB’s free convertibility. The coming years are of key importance to speed up the opening of capital account in China. Unlike Hong Kong, Shanghai is an onshore financial center. Cooperation between these two financial centers should be enhanced. It is also necessary to expand the scale of Central Bank currency swaps to encourage the project along the B&R using local currency settlements. Make conditions that help financial centers around world, Hong Kong, London, Frankfurt, Paris, Luxembourg, Singapore, Sydney, Seoul, Toronto, and New York, to fully play their roles in the expanding RMB network. Speed up the construction of offshore Renminbi settlement system. Enhance the leading role of the Central Bank. Enhance the existing commercial banking system, including credit cards and the on-line banking to promote RMB playing a greater role in the B&R’s construction.
By the way, I visited Africa last month. I really think Africa has huge potential on development. China should strengthen the cooperation with three traditional financial centers, Mauritius, Johannesburg, and Casablanca, which geographically form a Great Triangle. In my opinion, this triangle could play an important role to convey RMB into African Markets.
Thank you for your attention.