Enter the Dragon
Internationalising the Renminbi

Michael Power

Enter the dragon:

Here lies a sleeping giant, let him sleep for when he wakes he will astonish the world.

In three decades, China has grown to become the world’s largest exporter, importer, foreign exchange reserve owner, and second largest economy in the world. Yet, for all this growth, the global role of the renminbi does not match China’s economic status: the currency is still only the fifth most traded globally.

Foreign investors view the greater internationalisation of the renminbi and easing of restrictions on cross-border capital flows as signs that the Chinese investment opportunity has come of age. But this process must be seen as a complicated rite of passage. Recent gyrations on China’s stock exchanges are vivid evidence of how difficult this process will be and how challenging the government has found it.

China has grown to become the world’s largest exporter, importer, foreign exchange reserve owner, and second largest economy in the world.

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Meanwhile, there are parallel developments that illustrate how China is actively seeking to expand its economic influence globally, using its currency as an instrument by which to advance its interests. China seems to be following an example first pioneered by Britain in the nineteenth century by re-exporting a large proportion of its current account surplus to the world through foreign direct investment.

A vital component of this process is of extensive capital investment worldwide is China’s so-called “One Belt, One Road” initiative, a scheme to develop key infrastructure along the ancient land and maritime

trading routes between China and Europe. On completion all trade routes from Europe to Australasia will lead to Beijing.

There is one further aspect to China’s masterplan that will fully internationalise the Chinese economy: the transformation of Shanghai into one of the principal fountainheads of global capital. Projects such as the Shanghai Free Trade Zone and the Shanghai-Hong Kong Stock Connect, will help expand and deepen China’s financial markets, helping China’s largest city rival the City of London and Wall Street as a major financial centre.

Projects such as the Shanghai Free Trade Zone and the Shanghai-Hong Kong Stock Connect, will help expand and deepen China’s financial markets.

1.3

China Going Global

Martyn Davies

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