What is your economic outlook for China in 2011, bearing in mind talk of it being a bubble economy?
Data reported this week shows that China has overtaken Japan as the world’s second largest economy, a long-anticipated event that underlines China’s growing global influence. At its current rate of growth, analysts see China replacing the US as the world's top economy in about a decade. This news, whilst not unexpected given the growth seen by China for many years, has received a relatively muted welcome from some in China who are concerned about the fragility of the property market and rising inflation. There is certainly talk of a bubble, especially for property, and inflationary pressures are likely to increase due to rising food prices. However China's economy is expected to remain strong in 2011, and will be heavily influenced by growing domestic consumption and adjustments to fiscal policy.
Renminbi reform has received a lot of coverage. What is your take on the currency and how is it affecting your cash management and trade finance businesses?
The debate around whether China’s new hegemony could influence the acceleration of the ‘greenback’ dollar being replaced by the ‘redback’ renminbi as the world’s favourite currency, has certainly stepped up over recent months. Indeed Beijing has made a surprising amount of progress in its aim of internationalising its currency. That said, there is a very long way to go, and the renminbi’s future is heavily dependent on whether China’s economy can continue on its current growth trajectory, whilst maintaining social stability by taking sure and considered steps in respect of economic and social development.
It is clear that reforms will eventually result in the renminbi being a viable means of settling, especially many intra-Asian trades, although long-standing ties of dollar pricing to some commodities may make these slower to convert. As a consequence, trade banks like BNY Mellon that are heavily involved in both intra-Asian and other global flows are gearing up to provide renminbi capabilities. While the volumes are still low, we expect the renminbi to ultimately comprise a large part of total intra-Asian transactions.
What are the demands on the adoption of renminbi for trade activities?
As China rises in economic power, it seems inevitable that its currency will rise in importance as well, simply because the Chinese economy is becoming so large and so crucial in world trade. We believe Beijing will use its growing global political influence to make the renminbi much more important, starting with trade settlements, with the ultimate goal to become a reserve currency when China gradually allows capital account movements.
In your view, what are the best ways to leverage on the renminbi liberalisation in cash and trade activities?
The liberalisation and internationalisation of the renminbi has been a long time coming, evolving at China’s characteristic thoughtful and measured pace. However, the steady roll out of renminbi trade settlement has seen global trade finance banks scramble to ensure they are well-positioned to capture this potentially lucrative new business. The winners will be those who are focused on the trade finance business in Asia, and therefore are already making significant investments in their existing technology infrastructure to accommodate the capabilities required to facilitate cross-border renminbi trades.
For banks around the world, the choice is whether to invest in building these capabilities directly, to leverage global banks that may be increasingly their direct competitors in their domestic market, or use a partner bank, like BNY Mellon, to provide their customers with efficient and reliable capabilities in both renminbi and other currencies. In response to the growing internationalisation of China's currency and increasing client demand in China, across Asia, and from other regions, we are taking the required steps to position ourselves as an efficient and reliable cross-border trade settlement provider for renminbi.