The Internationalisation of the Renminbi
As part of wider market-oriented reforms China recently changed its FX policy, with dramatic repercussions for a broad range of markets globally. The regime change that China has embarked on is always fraught with dangers but the challenges it faces are magnified by incomplete reforms in other areas, the consequences of stimulative measures to mitigate the Great Recession and poor communication. Global markets face the challenge of an unleashed giant panda!
In fact the more recent changes follow on from a succession of other measures, including the development of the offshore renminbi and its dim sum bond market, portfolio flows and cross-border payment liberalisation and renminbi trade invoicing.
This course covers why the changes have been made, how they have been implemented and the various challenges the Chinese authorities and markets face.
• Why China’s FX policy has changed
• How the FX policy change fits in with the broader reform context in finance and the wider economy
• How the policy change has been implemented – the various measures
• What further possible changes may come and their impact
Who should attend?
• Fund managers
• Capital markets staff
o The goal: the fastest possible growth consistent with stability
o Macro-economic policy choices and the impossible trinity – free flows of capital, a sovereign monetary policy, a stable exchange rate; the pros and cons of the 3 permutations
o An example: Hong Kong’s peg
o The ideal pre-conditions for capital account liberalisation: a strong and market-based financial system, etc.
o FX valuation factors – interest and inflation rate differentials, carry, Direct Investment and Portfolio flows, etc.
• China’s back story:
o Mercantilism – export-driven growth and FX controls, the daily dollar fix and the resultant growth in FX reserves, China’s holdings of US Treasuries – ‘Chimerica’
o Mercantilism’s success – China’s growth and its position in world trade, Chinese factory strikes (!)
o Mercantilism’s drawbacks and limits: sterilisation issues, (negative) carry, trade partner complaints, the end of the cheap labour era, export saturation
o The move towards services and consumption
• The changes:
o Foreign and Outward Direct Investment (FDI and ODI) flows
o The widening the of the CNY trading band
o The development of the offshore renminbi market (CNH) and the dim sum bond market, in Hong Kong and elsewhere
o The CNH-CNY basis
o The evolution of the forward curves
o Portfolio in and outflows – FQII quotas, Stock Connect, etc.
o Cross-border payment liberalisation and the Free Trade Zones (FTZs)
o The growth in Renminbi trade invoicing
o The August 2015 devaluation shock, capital outflows and the jump in the basis
o Speculative pressures: over-invoicing and many aunties
o From the dollar fix to the currency basket peg
o A ‘freely usable’ currency – joining the IMF’s SDR
o Domestic interest rate liberalisation, the domestic bond market, Wealth Management Products (WMPs), NPLs, defaults and protests
o An additional challenge: the increased lending to combat the Great Recession
o Will Pandas eat Dim Sums?
o A Chinese answer to the trilemma? 3 x 2/3 = 2
As every course we run is tailored to meet the specific needs of each client, we can only provide an estimate after fully understanding your specific requirements. Please complete the form below of call +44 (0) 208 894 4977 to discuss how Taylor Associates can help you.