发布:2017-06-02 12:21 来源: 中国betway体育官网网


A Fresh Opportunity for Renminbi Internationalization





China's foreign exchange reserves rose to US$3.03 trillion in April, marking the third straight month of increases amid stability in the renminbi exchange rate and reduced pressure from capital outflows. There has been much debate as to whether China should protect its foreign exchange reserves or defend the currency's exchange rate. This is actually a false choice. Sharp declines in foreign exchange reserves are closely linked to expectations that the renminbi will depreciate. At the same time, the US$3 trillion reserve level is not a line in the sand. But ensuring exchange rate stability will help prevent large-scale capital outflows and financial risks.




The renminbi's exchange rate and the nation's foreign exchange reserves have been rising in tandem recently. There are a number of reasons for this. First, the external environment has changed, with the dollar hitting a peak and then falling back. The eurozone has also seen improvements in its economic and political environment, including the solid victory in the French presidential election for the pro-European Union candidate Emmanuel Macron. Meanwhile, US President Donald Trump has so far been unable to deliver much in his "Make America Great Again" agenda, and that has taken some of the buoyancy out of the dollar. It is likely that that the dollar will reach a turning point this year, and that will ease the downward pressure on the renminbi and reduce capital outflows. The renminbi has also benefited from the stabilizing of China's economy as well as a tighter monetary policy and the implementation of fresh capital management measures. Since the beginning of this year, in order to reduce the downward pressure on the renminbi, the central bank has stepped up intervention in the foreign exchange market, increased the cost of shorting the renminbi in the offshore market and tightened the management rules for cross-border capital flows.




This has raised concerns among some observers that China may be turning the clock back to the days of strict capital controls. That would be a setback in the program to internationalize the renminbi and reform the currency regime. It would also damage investor confidence. Pan Gongsheng, vice governor of the People's Bank of China and administrator of the State Administration of Foreign Exchange, addressed these concerns at a key business meeting, the China Development Forum, in late March. He pointed out that overseas direct investment surged 40% last year, well above the levels of previous years. Many of these investments were irrational and in some cases were merely asset transfers in the name of foreign direct investment.




As to concerns that China might choke off profit remittances of foreign businesses, Pan said there would be no obstacles to moving profits offshore if they meet certain conditions. The profits need to be in accordance with relevant Chinese legal requirements and take into account any previous losses. There also must be a profit distribution plan backed by the board of directors, an audited financial statement and documents showing that taxes had been paid. If these requirements have been met, there are no obstacles to remitting corporate profits.




The pros and cons of capital controls are not always so clearly defined. The key lies in how the controls are applied. Although more controls in the short term will dampen investor confidence in reform, there could be some longer term benefits. If certain capital controls can help deflect expectations of currency depreciation by reducing capital outflows, this will ultimately shore up investor confidence in the stability of the Chinese economy. That in turn will win time for the economic reform drive. In fact, since the Asian financial crisis in 1997-1998, the International Monetary Fund has been reassessing its calls for complete capital account convertibility. Instead, it has supported basic targets for capital account convertibility.




To be sure, there has been an easing of pressure for a substantial depreciation of the renminbi and large-scale capital outflows. This can be seen as a good opportunity to promote the internationalization of the renminbi. Recently, a number of senior officials of the central bank have made public statements that lend support to reforms such as the internationalization of the currency. Pan stated that the economy's "open window will not be closed," and added that "reform should not only have targets, but also strategies to achieve its goals." Yi Gang, vice governor of PBOC also said, "Renminbi internationalization is a long-term strategy, and perseverance is needed to make steady progress towards this goal."




As the risks from cross-border capital flows decline, authorities still need to make a careful screening of the items under the capital account. There is a need for strengthened supervision over some of the less rigorously considered investment projects and action should be taken against underground banks. At the same time, there must be guarantees for outbound remittances of corporate profits that meet regulatory conditions while individuals need access to foreign exchange for reasonable purposes.



On May 16, the People’s Bank of China and the Hong Kong Monetary Authority (HKMA) have jointly announced details of the long-awaited Bond Connect scheme, which promotes the opening of the capital account and two-way cross-border fund flows.




The Politburo has listed "safeguarding national financial security" as one of the important tasks in China's economic work this year. Regulators have also actively applied measures to guard against financial risks. However, it is obvious that the main financial risks are domestic in origin. It is likely that the effort to reduce financial leverage will gain momentum this year, and that could accelerate the opening of the capital account and the process of internationalizing the renminbi. This is a response to the doubts that have been expressed over the nation's resolve in pursuing an opening of the capital account and the internationalization of the renminbi. Ultimately, this will be conducive to reinforcing investor confidence in China's reform program.