The Renminbi Rises: Myths, Hypes and Realities of RMB Internationalisation and Reforms in the Post-Crisis World

210 Pages·2013·1.042 MB·English

by  Chi Lo (auth.)

The Renminbi Rises
Also by Chi Lo
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CHINA AFTER THE SUBPRIME CRISIS: Opportunities in the New Economic
Landscape
PHANTOM OF THE CHINA ECONOMIC THREAT: Shadow of the Next Asian
Crisis
THE MISUNDERSTOOD CHINA: Uncovering the Truth behind the Bamboo
Curtain
THINKING THE INEVITABLE: China’s Economic Superpower Aspiration in the
New Paradigm
UNDERSTANDING CHINA’S GROWTH: Forces That Drive China’s Economic
Future
WHEN ASIA MEETS CHINA IN THE NEW MILLENNIUM: China’s Role in
Shaping Asia’s Post-Crisis Economic Transformation
The Renminbi Rises
Myths, Hypes and Realities of RMB
Internationalisation and Reforms
in the Post-Crisis World
Chi Lo
© Chi Lo 2013
Softcover reprint of the hardcover 1st edition 2013 978-1-137-34624-7
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First published 2013 by
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ISBN 978-1-349-46685-6 ISBN 978-1-137-34625-4 (eBook)
DOI 10.1057/9781137346254
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To Yee
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Contents
List of Illustrations viii
Preface x
Acknowledgements x v
List of Abbreviations and Terms Used in the Book xvi
1 Renminbi Shakes Up Global Currencies 1
2 A Not-so-Mighty Yuan 1 7
3 From Money to RMB-nisation 3 6
4 Trade Is not Enough 5 1
5 The Next Steps for Internationalisation 6 7
6 China Ready for a Globalised RMB? 8 7
7 Creeping Reforms Raise Systemic Risk 1 06
8 RMB-nisation Needs Offshore Market 1 24
9 RMB – The Third Major Reserve Currency 1 45
10 T he Reality behind RMB-nisation 1 62
Notes 1 78
Bibliography 1 86
I ndex 1 91
vii
List of Illustrations
Tables
2.1 Estimated Yuan basket 34
7.1 Structural change of bank margins 113
Figures
1.1 USD trade-weighted components 6
1.2 US 10-year Treasury yield on secular decline 9
1.3 Japan’s FX trading losing out to EM 10
1.4 China climbing the value-added chain 11
1.5 EM Asian exports to Japan and China 12
1.6 RMB’s nominal exchange rate indices 14
2.1 Gross issuance of “dim sum” bonds in
Hong Kong 20
2.2 China’s external surplus falling 21
2.3 RMB real effective exchange rate 21
2.4 China’s raw material trade balance 22
2.5 Current account adjusted for raw materials 23
2.6 China’s overall trade surplus vs. surplus with Europe and
the United States 23
2.7 Estimated hot money flows 27
2.8 Offshore vs. onshore RMB exchange rate 2 7
2 .9 Estimated over-invoicing of Chinese imports 28
2.10 Absence of Chinese core inflation 32
3.1 Breakdown of CNH bond issuers (2011) 4 2
4.1 RMB trade settlement amount 53
4.2 RMB deposits 54
4.3 Gross issuance of RMB bonds in Hong Kong 55
4.4 Foreign currency deposits 63
5.1 Signs of success of RMB trade settlement 69
5.2 Reshuffling of foreign currency deposits 70
5.3 Growth of the dim sum bond market in
Hong Kong 74
5.4 China’s higher value-added exports 77
5.5 China construction service exports 77
5.6 CNH bond issuers (2010) 78
viii
List of Illustrations ix
5.7 CNH bond issuers (2011) 78
5.8 Gross public debt-to-GDP ratio 8 2
5.9 China’s trade balance with the G3 8 4
6.1 Gross external debt comparison 9 0
6.2 Rising incentive of capital flight 9 2
6.3 Chinese bond market 96
6.4 China’s fragmented bond market 96
6.5 RMB FDI in China picking up steam 9 8
6.6 Breakdown of CNH bond issuers 100
6.7 The impossible trinity 101
7.1 Share of loss-making government-controlled
enterprises 109
7.2 Profit-to-cost ratio 109
7.3 Chinese bank margins 113
7.4 Bank lending to non-state companies 1 14
7.5 Signs of structural shift disrupted 1 16
7.6 Chinese consumption as % of GDP 116
8.1 China’s trade balance with Asia 128
8.2 RMB accumulation in Hong Kong 130
8.3 Chinese imports from Hong Kong, ASEAN and
the United Kingdom 131
8.4 Taiwan–China trade balance 134
8.5 Taiwan’s outbound FDI 134
8.6 Chinese exports climbing the value chain 1 36
8.7 China’s construction service export on the rise 1 36
8.8 Gross issuance of bonds and loans in Hong Kong 1 37
8.9 Offshore RMB deposits 137
8.10 Inefficient arbitrage between CNY and
CNH markets 143
9.1 Public debt to GDP ratio 149
9.2 Average ten-year government bond yield 1 49
9.3 RMB trade settlement 156
9.4 Accumulation of RMB offshore 1 57
9.5 RMB/USD exchange rate 158
9.6 Change in correlation of Asian currencies with
RMB, USD and EUR from period 1 to period 2 of
RMB flexibility 159
9.7 RMB and KRW have risen against the
USD in tandem 160
10.1 Discrimination against China’s private sector 1 67
10.2 Sign of rising government intervention 1 70
10.3 Government debt as % of GDP 171