Renminbi news and insights | Standard Chartered

Renminbi tracker: How global is the renminbi?

Roberts, Martin — Tue, 12 Nov 2019 00:30:58 +0000

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Infographic: Appetite for China investments is rising

Invisible author — Wed, 18 Jul 2018 10:32:47 +0000

Our third Renminbi Investors Survey shows that investor sentiment towards China is improving, with more than four in five (88 per cent) of respondents now investing in China, up from three in five (67 per cent) in 2016. New and improved investment channels such as Stock Connect and Bond Connect are having a significant influence on this. Take a look at the infogrphic below for a snapshot of the findings.

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China investments enter a new era

Margaret Harwood-Jones — Fri, 22 Jun 2018 09:15:06 +0000

There have never been more foreign investors investing in China, as general optimism about the market has been boosted by the availability of clearer, simpler access channels.

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Now in its third year, our annual renminbi (RMB) survey of investors, regulators and custodians across Asia, Europe and North America shows that investor confidence about China is at its most bullish since we launched the survey in 2016, with more than four in five (88 per cent) of respondents now investing in China, up from more three in five (67 per cent) in 2016.

Based on responses to our 2018 renminbi survey of investors

And positive investor sentiment is no longer concentrated in the traditional renminbi (RMB) hubs of Hong Kong and Singapore. North America has emerged as one of the most positive markets, with three quarters (78 per cent) of respondents investing in China and an overwhelming majority (87 per cent) looking to increase their exposure over the next 12 months.

Infographic: How investors view China

As well as overall optimism, the latest survey shows that we are starting to see investor priorities shifting, with concern over regulation giving way to more practical considerations such as access to funding and account opening. This shift has been driven by the two issues that have dominated China investment this year: new access schemes and index inclusion.

The Connects are accelerating China investment flows

The launch of the Bond Connect programme in July 2017 and continued enhancements to the Stock Connect programme have provided investors with two channels that provide a clear operational framework and swift application approvals.

By reducing concerns over safety and transparency, the mechanisms are attracting fresh interest. Both Stock Connect and Bond Connect have become core investment channels, with almost half (48 per cent) of respondents planning to use Stock Connect for future investment – up from one in five (22.3 per cent) last year – and almost a quarter (23 per cent) expecting to use Bond Connect, which has only operated for less than a year.

"For most investors, it seems the decision about whether to invest in China is no longer a question of it, but how"

Margaret Harwood-Jones Global Head, Securities Services, Transaction Banking

That said, the Connects still do not offer all the risk management tools investors require, such as the ability to hedge and delivery versus payment. These omissions continue to hamper take-up from jurisdictions with stricter regulatory oversight. For this reason, access mechanisms such as the Qualified Foreign Institutional Investor (QFII) programme and the Renminbi Qualified Foreign Institutional Investor (RQFII) programme still have a role to play in investors’ China toolbox.

Index inclusion drives market development

Meanwhile, the inclusion of China’s A-shares into the MSCI Emerging Markets Index and the proposed entry of onshore bonds into the Bloomberg Barclays Global Aggregate Index are spurring market enhancements, as regulators and markets act to meet the inclusion criteria. Our survey suggests that index inclusion is already impacting investor behaviour, with 44 per cent of respondents investing before rebalancing.

However, there are still issues that China’s regulators need to address. At our recent roundtables with clients, it was clear that the number and variety of access schemes is starting to weigh financially and operationally on investors, custodians and regulators. Rather than welcoming further new schemes, such as the upcoming London-Shanghai Connect, the industry’s preference is for harmonisation across the existing access channels.

But for most investors, it seems the decision about whether to invest in China is no longer a question of if, but how. If the country’s regulators can iron out the remaining roadblocks, a new era of Chinese investment could really take off.

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China’s Belt and Road gains traction

Lan Shen — Fri, 02 Dec 2016 15:34:56 +0000

Whilst still a confusing concept to some in the West, China’s Belt and Road (B&R) initiative – launched three years ago – is now gaining significant traction.

The ambitious project – effectively linking trade in around 60 Asian and European countries along a new Silk Road – is China’s most important strategic initiative, and a crucial component of President Xi’s foreign policy.

China has now signed project contracts worth USD926 billion with over 60 countries along B&R. A series of cross-border infrastructure projects are in construction, such as a new China-Laos railway, a highway in Pakistan and a port in Vietnam.

"China’s infrastructure projects will expand quickly to more countries and regions"

So far, China’s infrastructure projects are mainly in Southeast and Western Asia, but we believe they will expand quickly to more countries and regions. We also expect more Chinese companies and private funds to join B&R projects in the future, provided the government-led projects prove successful.

Becoming a major capital exporter

Already, the B&R initiative has boosted trade and investment considerably. Trade between China and countries along the land and sea-based routes exceeded USD1 trillion in 2015, a quarter of China’s total trade value. China’s exports to B&R countries now exceed those to the US and the European Union (China’s top two export destinations), and the gap is widening.

China has developed over 50 overseas economic and trade cooperation zones with countries along B&R, and has expanded its free trade zones trial from four to seven provinces, including inland regions, which will help push B&R investment projects, simplify cross-broader transactions and improve trade liberalisation.

B&R has also accelerated China’s shift from being the world’s biggest goods exporter to becoming a major capital exporter. China’s outbound direct investment (ODI) to countries along B&R grew 23.8 percent year-on-year in 2015, and was up 60 per cent year-on-year in the first half of this year. We expect China’s cumulative non-financial ODI to reach an impressive USD2 trillion by 2020, more than a doubling of end-2015 levels.

Rallying the renminbi

Another important effect of B&R is internationalisation in the Chinese currency. So far, China has expanded its bilateral local-currency swap programmes to 21 countries along B&R, granted renminbi quotas to institutional investors in seven countries, and set up renminbi settlement banks in eight countries. These steps have helped renminbi trade settlement increase to more than 25 per cent of China’s trade in early 2016, from a mere 5 per cent at the beginning of 2012. Renminbi trade settlement is set to be boosted further as Chinese companies pursue opportunities along B&R.

New financing mechanisms, set up by China, demonstrates the leadership’s strong commitment to B&R. China has encouraged commercial banks, quasi-official regional cooperation funds and private capital to participate in B&R projects, to boost limited official resources and make projects more commercial.

The Asia Infrastructure Investment Bank, New Development Bank and Silk Road Fund, together with China’s policy banks, have taken the lead and started to participate in cross-border investment projects.

Overcoming obstacles

Despite the progress, obstacles to the B&R initiative persist. Projects in some countries have been suspended or postponed, highlighting the need for China to address concerns about outcomes and costs. B&R is not a foreign aid programme, but a commercial project which requires participating countries to make a long-term commitment and contribute investment.

The Chinese leadership has called for better coordination among participating countries, but, to achieve this, China will need to articulate clearly the mutual economic benefits of the initiative, and demonstrate through existing projects that B&R will create jobs, improve trade connections and improve living standards.

Meanwhile, the Chinese companies leading the investments need to gain more experience and knowledge in operating and investing in B&R countries, navigating debt, foreign exchange and geopolitical risk.

These risks can be mitigated, as long as companies conduct project assessments and implement appropriate risk management before operating – using credit insurance protection and overseas investment service platforms to help manage the projects. We think China could make it easier for private companies to control their risks, by encouraging multilateral institutions to participate in projects, and by continuing to promote international adoption of the renminbi.

"Uncertainty around the trans-Atlantic and trans-Pacific trade deals amid Donald Trump’s victory could renew efforts for alternative regional trade deals"

The B&R initiative is undeniably important to China’s growth prospects, but the initiative goes far beyond benefiting China, especially given today’s economic headwinds.

The uncertainty around the US-led trans-Atlantic and trans-Pacific trade deals amid Donald Trump’s election victory, along with the rising risk of an anti-globalisation push by the US, could renew efforts for alternative regional trade deals.

If implemented effectively, the B&R initiative will improve global trade and commodity demand at a time of rising uncertainty, bringing a much-needed boost to global growth.

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Infographic: China’s bond market at a glance

Invisible author — Wed, 27 Apr 2016 12:51:45 +0000

What the renminbi’s rise means for Africa and the Middle East

Sunil Kaushal — Mon, 04 Jan 2016 15:12:54 +0000

The recent announcement of a joint investment fund worth USD10 billion between China and the UAE underscores the strengthening economic ties between the two countries.

Likewise, for the wider Middle East and Africa region, China is becoming an increasingly important partner for trade and investment. For this reason, countries here stand to benefit significantly from the internationalisation of the Chinese currency, the renminbi (RMB).

The rise of the RMB gives emerging markets an important alternative when it comes to currency investment and hedging.

In Africa, the regional constraints associated with currency fluctuations and frequent shortages of US dollar liquidity could ease a little now, which could benefit many economies.

"The opening of the first RMB clearing centre will support the growing trade and investment between China and the Middle East"

In the Middle East, the opening of the first RMB clearing centre earlier this year is a key milestone, which will support the growing trade and investment between China and the Middle East economies. This means that deals will no longer have to be directed to China or Hong Kong for clearing.

Gaining influence

The rise of the RMB – cemented by the recent inclusion of the RMB in the International Monetary Fund’s Special Drawing Rights basket of currencies – will help countries in Africa and the Middle East to reduce their dependence on developed market currencies.

An additional major, global currency brings diversity, choice, and ultimately increases the general influence of emerging markets on the global currency stage.

"Adopting the RMB can make Chinese imports cheaper"

Trade remains the primary economic driver in growing emerging markets. By switching to RMB, importers and exporters who trade with China are able to reduce the risk and cost associated with converting local currencies into US dollars.

Adopting the RMB can make Chinese imports cheaper, with some Chinese suppliers willing to lower their prices to reflect lower foreign exchange costs.

Settlement in RMB set to increase

According to a survey conducted in October 2015 by Standard Chartered in association with The Asset magazine, 80 per cent of Chinese exporters anticipate their trade settlement in RMB will increase in the next six months

In Africa, in the central banks of Angola, Nigeria and Tanzania have already invested part of their reserves in RMB, with all three countries taking a pioneering step into ‘Dim Sum Bonds’ (bonds issued in RMB).

Qatar is the Middle East’s first RMB clearing centre, with Dubai touted to be the next obvious choice for RMB clearing, followed by South Africa.

We see China’s ‘Belt and Road’ (B&R) initiative as another key development for the Africa and Middle East region, with focus on infrastructure connectivity, investment, trade and financial cooperation. This will boost Africa and Middle East’s significance as a valuable trading partner for China, and spur economic growth.

The B&R initiative is likely to shift China from being the world’s largest goods exporter to a major capital exporter, boosting the use of RMB in financial, investment and trade transactions along the B&R.

"Adopting the RMB can make Chinese imports cheaperThe benefits are no longer a distant forecast, but an imminent reality"

The RMB’s rise to fame is a great opportunity for emerging markets, strengthened by China’s commitment to new and mutual beneficial partnerships – such as the newly announced China-UAE fund.

Adoption of the currency by local companies and traders in Africa and the Middle East is gradual, but positive. And with the increasing number of clearing hubs and the inclusion of RMB in central bank reserves, the benefits are no longer a distant forecast, but an imminent reality.

A version of this article first appeared in The National on 20 December 2015

Renminbi – opening the gates

Jukka Pihlman — Mon, 30 Nov 2015 19:08:55 +0000

Following the earlier announcement in November that the renminbi (RMB) meets the International Monetary Fund’s (IMF’s) criteria as a ‘freely usable’ currency, the IMF Executive Board has now formally decided to include the RMB in its Special Drawing Rights (SDR) basket of currencies from 1 October next year.

This came as no surprise to those who have followed China’s unprecedented steps to open up its capital markets.

A monumental milestone for the RMB – which enters the SDR with a weighting of almost 11 per cent – this event will trigger significant but gradual inflows of funds into RMB, changing the global currency landscape forever, as central banks, sovereign wealth funds (SWFs) and multilateral institutions recalibrate their balance sheets.

"As many as 70 central banks have already invested part of their reserves in renminbi"

Many will not wait until next year before taking action. Indeed, as many as 70 central banks have already invested part of their reserves in renminbi, either onshore or offshore.

The reforms made by China to qualify for SDR inclusion have been so radical that – to public sector investors – the RMB has become fully convertible with no restrictions on access or size of investment in the China interbank bond market, something which has largely gone unnoticed.

Five out of the world’s 10 largest central banks have so far refrained from investing in the Chinese interbank bond market. However, because of China’s recent reforms, these and many other public sector investors are now reviewing their stance.

Double-digit share of global reserves

Eventually, we should expect to see RMB reach a double-digit share of global reserves – inflows in the order of USD800 billion to more than USD1 trillion. Even a conservative estimate of reallocation of about 1 per cent of global reserves each year would mean about USD80 billion inflows annually – no mean sum

Added to the moves by central banks will be those by SWFs. Though SWFs typically have smaller fixed income allocations, their investments will be sizable, too. Norway’s SWF alone is likely to invest over USD40 billion.

The implementation of the RMB’s inclusion in the SDR basket 10 months from now will also inevitably trigger a significant rebalancing or hedging demand for the Chinese currency, though this, too, is likely to occur gradually.

"By far the most significant effect from the RMB’s inclusion on currency flows will come from multilateral institutions"

Contrary to common perceptions – given that the aggregate SDR assets of the central banks in the IMF member states (around USD280 billion) have an equal amount of SDR liabilities – the RMB’s addition to the SDR basket will not actually trigger a system-wide hedging demand, though some countries that are long or short on SDR may hedge their positions.

Instead, by far the most significant effect from the RMB’s inclusion on currency flows will come from multilateral institutions. The IMF’s own investment account and investment by its Poverty Reduction and Growth Trust would need to be rebalanced to include the RMB.

Likewise, institutions such as the Bank of International Settlements, the African Development Bank, the Islamic Development Bank, the Arab Monetary Fund and the International Fund for Agricultural Development have SDR-denominated balance sheets, which will need to be rebalanced.

The World Bank and Asian Development Bank would also be affected as some of their facilities for the world’s poorest countries are denominated in SDR. The combined size of these multilateral institutions’ SDR-denominated balance sheets is around USD600 billion, so the resulting RMB flows could be over USD65 billion.

Private sector investors are yet to enjoy the same unfettered access to RMB investment as their public sector counterparts, but the sheer speed and extent of China’s reforms in the past year strongly signals China’s intent to accelerate the full opening of its capital account. This may happen a lot faster now than people currently expect.

The ‘ifs’ and ‘buts’ for the RMB are over. For those who are yet to formulate an RMB strategy, now is the time.

This article was first published in The Financial Times on 30 November 2015

Renminbi – a global contender

Invisible author — Tue, 17 Nov 2015 08:27:51 +0000

Full speed on the renminbi superhighway

Frankie Au — Mon, 12 Oct 2015 09:11:36 +0000

As Sibos – the major annual banking conference organised by SWIFT – gets underway in Singapore, one topic bound to dominate discussions is the rise of the renminbi (RMB), which is rapidly transforming the global financial landscape.

Last week’s launch of the new Cross-Border Interbank Payment System (CIPS) is the latest major landmark on the RMB’s path to internationalisation, a journey that will one day culminate in the Chinese currency being used as freely as the US dollar.

CIPS creates a superhighway for RMB payments, making cross-border transactions into and out of China much more efficient for financial institutions and corporates. IKEA was one of the first major corporates to benefit, as Standard Chartered successfully completed an RMB transaction from China to Luxembourg for the company last week.

CIPS is a gamechanger and its power should not be underestimated.

"In the past three years alone, the RMB has overtaken seven countries in SWIFT’s currency rankings"

The international use of the RMB still does not reflect China’s status as the world’s second-largest economy. The US dollar takes the lion’s share of payments by value (44.82 per cent), while the RMB has passed the yen in fourth place (2.79 per cent), according to SWIFT.

However, given the size of China’s economy and its status as a global trading partner, it is inevitable that the RMB will become a global currency. RMB payments have been steadily increasing since China began to lift restrictions on cross-border payments. In the past three years alone, the RMB has overtaken seven countries in SWIFT’s currency rankings.

Market-led devaluation

As for the doom mongers who predict that the RMB’s internationalisation will stumble because of the recent volatility in the stock market and US dollar-RMB exchange rate, we disagree.

In August 2015, the People’s Bank of China (PBoC) announced it was changing the way the RMB-US dollar reference rate is calculated, making it subject to market rates and the previous day’s close. The move resulted in devaluation of the RMB, which was led by market forces.

"The launch of CIPS provides the infrastructure essential to support the growth in the international RMB payment traffic"

Greater volatility in the trading of the RMB makes it more akin to liberalised currencies. It also creates more urgency for hedging currency exposures, and thus increases RMB foreign exchange settlement flows. Meanwhile, the foreign exchange risk will prompt corporates to use RMB to settle their trade with China. For many, it will be more effective to centrally manage the US dollar-RMB foreign exchange risk offshore and hedge the exposure at optimal rates, given now it’s possible for corporates outside of China to access both onshore and offshore foreign exchange markets.

Liberalisation encourages RMB use

The change made by the PBoC has also been viewed as a measure that is necessary for the RMB to be considered for inclusion in the International Monetary Fund’s (IMF’s) basket of special drawing rights (SDR) currencies later this year – a move which could significantly boost the RMB’s fortunes.

The liberalisation of China will continue to encourage international use of RMB for trade or investment. The launch of CIPS provides the infrastructure essential to support the growth in the international RMB payment traffic.

For the delegates from banks and businesses attending this week’s Sibos in Singapore it is likely to prove a major milestone.

This article is co-authored by Stephen Street, Executive Director, Correspondent Banking, Transaction Banking, Standard Chartered

Survey: Investor confidence in renminbi unshaken

Will Leung — Fri, 09 Oct 2015 08:26:09 +0000

In recent months, the renminbi (RMB) exchange rate, along with stock market volatility, has become a key concern for retail investors in Asian markets.

In the past, investors used to focus on the room for RMB appreciation. These days, it’s the reverse that everyone is occupied by.

Standard Chartered’s survey on the RMB investment appetite among 500 retail investors – conducted in mid-August just as markets were braving the devaluation wave – showed that over 60 per cent of the respondents expected to see further decline of the RMB in the coming year.

But even then – at the height of the action – half of the respondents expected the possible future weakness to be less than 5 per cent.

"Among our survey respondents, only a quarter intended to reduce their holding"

Investors expecting a drop in the value of the RMB could normally be expected to sell off their RMB investments, but, among our survey respondents, only a quarter intended to reduce their holding.

The survey results suggest that investor confidence in the long-term prospects for the RMB is unshaken, and that as long as the movement in the RMB is within a certain range of expectation, investors are still willing to hold onto it.

Though the RMB has fallen by close to 3 per cent this year, compared with the movement in currencies of other Asian or emerging markets, or even the world’s major currencies, the movement of RMB is relatively small and may be the motivation for certain investors who elect to stay put and hold on to the Chinese currency.

However, following the devaluation in August, it is possible that RMB will be subject to two-way volatility in the future, and, under this new trend, it may be time for investors to consider adjusting their strategy.

"Those who intend to hold onto the RMB may want to consider investing their capital through other products, such as stocks, bonds and funds"

Buying RMB and holding it in time deposit used to be the most popular strategy for RMB investment, bringing investors a higher interest rate as well as currency appreciation opportunities.

Going forward, those who intend to hold onto the RMB may want to consider investing their capital through other products, such as stocks, bonds and funds. Whilst these types of products have a different risk profile from time deposits, they have the advantage of presenting investors with different choices to suit their needs, catering to a wide range of time frames and risk appetites.

This commentary is provided for general information purposes only, it does not take into account the specific investment objectives or financial situation of any particular person or class of persons and it has not been prepared as investment advice for any such person(s). Further details can be found in these Terms & Conditions.