Insight Report of the World Economic Forum: RMB and the Internationalization of China's Capital Market
The World Economic Forum has released its latest Insight Report, which includes a focus on the RMB and the internationalization of China's capital market. The report explores topics such as regulatory changes in China's capital market, the role of private equity and venture capital in China's capital market, and the growth of RMB-denominated debt products. Overall, the report provides an in-depth look at how China's capital market is evolving and how it is impacting businesses around the world. In addition, it provides valuable insights into how businesses can better prepare for these changes.
Why do Western countries want the RMB to continue to strengthen its international position?
The internationalization of China's capital market is a top priority for the government and it is moving forward at a very rapid pace. In 2016, RMB Assets Under Management (AUM) surpassed USD 2 trillion for the first time in history. Furthermore, in the past two years, there has been an increase of RMB-denominated investment products in the global capital markets. This indicates that the RMB is becoming more accepted as an international currency.
One of the reasons for this increased acceptance is that China's economy is now much larger than it was five or ten years ago. As such, there are more investors who want to invest in Chinese companies and assets. Additionally, Beijing has worked hard to improve the regulatory environment for foreign investment, making it easier for companies to do business in China and attracting more foreign capital.
In terms of future growth prospects, many economists believe that the RMB will continue to gain prominence on the international stage. The International Monetary Fund (IMF) recently praised Beijing's efforts to promote global financial cooperation through its Belt and Road Initiative and stated that "the renminbi should be seen as one of several currencies with which countries can conduct trade." The IMF also believes that the RMB will become increasingly important as a global reserve currency over time.
Is the era of RMB coming?
According to the World Economic Forum's 2016 Global RMB Investor Outlook, the era of the Chinese renminbi as a global currency is gradually coming to an end. The report found that although the renminbi has a growing role in international trade and finance, it remains significantly undervalued against most major currencies on a current account basis. This undervaluation gives China's export-driven economy an advantage over other countries. In addition, the large amount of foreign investment into China's capital markets has also led to market fragmentation and increased competition.
Despite these limitations, the report found that the globalization of China's capital markets has had some positive effects. For example, it has made Chinese companies more accessible to international investors and facilitated their access to foreign financial markets. Furthermore, it has helped promote innovation by facilitating the spread of new technologies across different industries. Overall, while there are still some challenges associated with globalization of China's capital markets, they are gradually becoming more established and functional.
Can RMB eventually replace the US dollar as the global dominant currency?
Since the global financial crisis of 2008, the internationalization of China's capital market has been one of the most prominent trends in the country. The motivations behind this trend are manifold:
First and foremost, Beijing wants to increase its access to foreign capital to support economic growth. Second, Beijing is trying to promote a more globalized economy by increasing Chinese companies' exposure to foreign markets. Third, Beijing is seeking to reduce its reliance on exports and foster domestic investment in order to build a strong domestic economy. And finally, Beijing wants to improve China's overall international image.
The RMB has played an important role in helping China achieve these goals. For example, in 2014 alone, RMB-denominated transactions totaled $5 trillion – more than three times the value of all cross-border trade conducted in US dollars that year. Furthermore, as Chinese companies increasingly seek to raise capital offshore, the RMB has become an increasingly popular option for investors around the world.
There are several reasons why the RMB may eventually replace the US dollar as the global dominant currency. First and foremost, because it is accepted by so many countries and institutions around the world, the RMB is seen as a strong currency with a stable future. Additionally, because Chinese companies are increasingly seeking funding in foreign currencies, investors are gravitating towards the RMB rather than other global currencies like the US dollar. And finally, because China has been making significant progress towards becoming a developed country with full