So let's start our journey directly from the field from China and we do it with Professor Michele Geraci already undersecretary in the Italian government for economic development, professor of economics, economist who teaches in Shanghai we should already...
Today, we talk about the internationalization of the Renminbi. This issue must be well understood because it is intrinsically linked to the trade war between China, the United States and the European Union, the latter not currently involved directly. Mu comment to an article written by Masciandaro on "Il Sole 24 Ore."
The State Administration of Foreign Exchange (SAFE) said on Monday, that foreign investors can now use derivatives such as forward contracts, swaps and options to manage currency risk on investments in China’s interbank bond market. There appears no easy arbitrage and that the interbank FX Future market prices futures efficiently, even in the absence of fully opened capital accounts.
A Foreign Ministry spokesman said on Feb 14th that China hopes that "relevant sides" will look on the RMB rate issue "in a right manner". Devaluation RMB to boost exports has mostly been a thing of the past, during the early days of WTO membership. In general China's exports have shown little elasticity to price. I also believe that RMB exchange rate should continue to be managed by the Central Bank and Trump is probably beginning to take a more real politik with China: the less is said, the better.
China's foreign reserves slipped below the $3 trillion level in January, the lowest level since February 2011. In the background of a lacking economic confidence and rising trade protectionism throughout the world, the implications of the decline of China’s foreign reserves remains to be seen. It is a concern because the world has been used to China accumulating reserves. The main concern is not the level of reserves, but is the trend.
The biggest challenge for China today lies in its capital account. Since the Renminbi began its downward slide in 2015, the incentive to reduce foreign debts and increase overseas assets has intensified.Under the accuse of Trump's claim that China is an exchange rate manipulation country, China can choose to apply a floating exchange rate policy. However, this policy would cost China large amount to maintain currency stability. Under this circumstance, China should try to increase foreign investment in order to maintain international control.
Accroding to Hexun.com, State Administration for Foreign Exchange (SAFE), fearing that cross-border M&A may be used by Chinese groups to move capital offshore, indicated that it will crack down on speculative acquisitions. From now on only “Strategic” acquisitions - that is those that have synergies with the buyer’s business at home - will be allowed. The closing of the Capital Account indicates, as I have often argued, that the Internationalization of the RMB is further away than generally assumed.
Geraci and Prof Liu Baocheng from University of international business & economics were guests at CCTV Dialogue on 24, December, 2016. The talks mainly concerns Private capital outflow and challenges in manufacturing sector. Geraci belives the top concern for China is to stabilize the financial system. The west and other emerging markets have had experience of crisis, so China needs to be very careful. China should slow down reforms in the financial markets.