The "Belt and Road" initiative has achieved fruitful results from its proposal to its implementation. It has become a global public product for my country to participate in global open cooperation and promote global common development. It has also opened up a new pattern for the internationalization of the RMB and brought a rare historical opportunity. A few days ago, the Bank of China Research Institute released a new research report that pointed out that in the past seven years, the use of RMB in the “Belt and Road” region has gradually increased, currency cooperation has continued to deepen, and infrastructure has become more and more perfect. However, the political and economic situation in the region is complex and diverse, the relevant systems and market construction are not yet "mature", and the use of RMB still faces some obstacles. In the future, the construction of the “Belt and Road” initiative and the internationalization of the renminbi will interact with each other, and it is necessary to build a sustainable circular model and structure that is primarily commercial and supplemented by policy.
Increasing acceptance and utilization
"Over the past seven years, the acceptance and utilization rate of RMB in the'Belt and Road' region has continued to increase." Zhao Xueqing, one of the authors of the report and a researcher at the Bank of China Research Institute, said that this is manifested in several aspects, including the RMB and the currency and foreign exchange transactions of the "Belt and Road". Outstanding progress has been made, the renminbi has become one of the important regional reserve currency options, and the renminbi clearing network and bank layout have continued to expand.
The report shows that in 2019, the amount of cross-border renminbi receipts and payments between China and countries related to the “Belt and Road” exceeded 2.73 trillion yuan, an increase of 32% year-on-year, and more than doubled from 3 years ago. The ratio reached 13.9%. Among them, the amount of receipts and payments of goods trade was 732.5 billion yuan, and the amount of receipts and payments of direct investment was 252.4 billion yuan.
It is worth noting that as the "Belt and Road" economic and trade exchanges become closer, the foreign exchange transactions of the RMB against the currencies of relevant countries continue to increase. In the national inter-bank foreign exchange market, the renminbi has achieved direct trading with 9 currencies of related countries, including the UAE Dirham, Saudi Riyal, Hungarian Forint, Polish Zloty, Turkish Lira, Thai Baht, Singapore Dollar, and Malaysian Ringgit. Git and Russian rubles; in the inter-bank regional trading market, China has launched foreign exchange transactions of RMB against Kazakhstan tenge, Mongolian tugrik, and Cambodian riel in Xinjiang, Inner Mongolia, and Guangxi, respectively, which will reduce corporate transaction costs and exchange rate risks. 1. It is of positive significance to enhance regional economic and trade exchanges. In 2019, the scale of RMB foreign exchange transactions against currencies of countries related to the “Belt and Road” reached 204.2 billion yuan, a year-on-year increase of 43%. However, compared with the US dollar, the euro, and the Hong Kong dollar, the currencies of countries related to the “Belt and Road” are still at a very low proportion of my country’s RMB spot foreign exchange transactions, with the transaction shares of 0.37% and 0.30% in 2019 and the first half of 2020, respectively.
At the same time, with the continuous advancement of the “Belt and Road” construction and the development of RMB internationalization, China has successively established bilateral local currency swap arrangements with the monetary authorities of relevant 21 countries. ASEAN’s “10+3” considers the inclusion of RMB in the Chiang Mai agreement , The renminbi began to show the characteristics of a regional reserve currency. Malaysia, Belarus, Cambodia, the Philippines, Saudi Arabia and other related countries have included the renminbi in their foreign exchange reserves, and Russia has even increased the share of renminbi reserves to about 15% in the context of "de-dollarization". According to the latest data from the International Monetary Fund (IMF), as of the first quarter of 2020, the global RMB reserves reached 221.48 billion U.S. dollars, accounting for 2.02% of the total international reserves, the highest level in history.
Not only that, 8 countries related to the “Belt and Road Initiative” have established RMB clearing arrangements, and the RMB cross-border payment system covers more than 60 countries and regions. Chinese-funded commercial banks have become the main force in the promotion and use of RMB in the “Belt and Road” initiative. As of the end of 2019, a total of 11 Chinese banks have established 79 first-level branches in 29 countries related to the “Belt and Road” initiative. Take Bank of China as an example. As of the end of 2019, it has followed up more than 600 major projects, and relevant institutions handled more than 4 trillion yuan in RMB clearing throughout the year. In addition, foreign banks such as HSBC, Citigroup and Standard Chartered are also optimistic about the “Belt and Road” prospects and RMB business, and have increased resource investment and financial cooperation.
There are still many challenges to bear fruit
In recent years, the renminbi has landed, taken root, and grown in countries related to the “Belt and Road” initiative, and has yielded fruitful results, but there are also many challenges. Especially under the impact of the new crown pneumonia epidemic, the regional environment is more complex and changeable, international currency competition is becoming increasingly fierce, the financial market is violently turbulent, and the construction of the “Belt and Road” and the use of RMB are both affected.
The report believes that the challenges are mainly manifested in four aspects. First, the political and economic environment is complex and changeable, and risks are intertwined; second, the financial system is underdeveloped with dual vulnerabilities; third, foreign exchange controls are strict and there is strong currency inertia; fourth, a mature and complete RMB use system has not yet been formed.
Zhao Xueqing said that the financial systems of countries related to the “Belt and Road” are under development, with limited breadth and depth of financial markets, relatively weak capital strength, high dependence on foreign capital, and dual vulnerabilities. From an internal point of view, the performance is "high leverage + foreign capitalization." In the past 10 years, debt in emerging markets such as the “Belt and Road” has continued to grow to US$71.1 trillion, with a leverage ratio of 219.7%, a record high. Western funds continue to penetrate and deepen their cultivation, occupying a relatively high proportion of government debt and equity assets in Hungary, Indonesia and other countries. From an external point of view, the performance is "high foreign debt + deficit." Some emerging markets have different levels of international payment imbalances. For example, Ukraine's current account deficit accounts for 3.2% of GDP. In order to protect international payments and support economic development, emerging markets borrowed a large amount of foreign debt, of which US dollar financing accounted for more than 80%. Under the impact of the new crown pneumonia epidemic, the financial vulnerabilities of emerging markets in the “Belt and Road” have been further exposed and intensified, causing capital outflows, market turbulence and rising debt risks, which may slow down the construction of the “Belt and Road” and endanger the safety and growth of RMB stock business Business sustainability.
In addition, the report pointed out that from the perspective of cross-border use, compared with Western developed economies, enterprises and financial institutions in countries related to the “Belt and Road” initiative have not fully entered my country's financial market. As of the end of 2019, only 48 banks in 23 countries have established institutions in China.
Build a sustainable recycling model and structure
The report pointed out that the construction of the “Belt and Road” and the internationalization of the renminbi complement each other. In the future, the two will deepen the interactive development, and it is necessary to build a sustainable circular model and structure that is mainly commercial and supplemented by policy.
First, strengthen top-level design and policy research to pave the way for the use of RMB in the “Belt and Road” initiative. “At present, my country has only signed bilateral settlement agreements in local currency with 9 relevant countries including Vietnam and Laos. Next, my country should strengthen policy research, deepen regional currency cooperation, and strive to reduce or even eliminate barriers to foreign exchange control in related countries.” Zhao Xueqing said.
Statistics show that from 2013 to 2019, my country’s trade with countries related to the “Belt and Road” has exceeded US$7.8 trillion, accounting for about 30% of my country’s total foreign trade. In the first half of 2020, ASEAN replaced the EU as my country’s largest trading partner. The report believes that as my country's economy develops steadily, economic and trade exchanges and industrial ties with countries related to the “Belt and Road” become closer, the use of RMB in the region will gradually deepen and become a matter of course.
Second, it is necessary to promote the renminbi valuation and settlement of current accounts, and gradually transform the currency structure of the business that is actually needed. Promote the cross-border use of RMB under the current account, and give full play to the positive role of RMB internationalization in serving the real economy and promoting trade and investment facilitation. For industries where my country has technological and market advantages, Chinese companies are encouraged to use the renminbi in their operations and transactions based on their pricing power advantages.
Third, it is necessary to build a commercial investment and financing system to promote the positive and interactive development of the RMB onshore and offshore markets. According to Refinitiv BRI statistics, as of the end of the first quarter of 2020, a total of 3,164 “Belt and Road” projects have been planned or under construction, of which 1,574 are Chinese participating projects with a total amount of US$2.1 trillion. In the short to medium term, the US dollar-based financial transaction pattern will continue, and the regional use of RMB should not rush for success. Policy funds can play a leveraging function, and are mainly used for sovereign-guaranteed long-term financing, public infrastructure financing, and low cash flow return project financing.
RMB investment and financing should emphasize safety, commerciality and sustainability. "Only when commercial finance acts as the main force and follows market-oriented rules, can country-specific and credit risks be effectively reduced and reasonable returns can be obtained." Zhao Xueqing said, innovating investment and financing models, and steadily advancing the opening of the domestic bond market and the construction of the relevant offshore RMB market. Development and effective mobilization of long-term funds to participate in the “Belt and Road” construction. (Economic Daily-China Economic Net reporter Qian Qingni)