Chinese renminbi 中国人民币 – the new currency of the 21st Century

Chinese renminbi 中国人民币

The Internationalisaltion of the 中国人民币

Before the 2013 Spring Festival 春节, the People's Bank of China named the Singapore branch of the Industrial and Commercial Bank of China the clearing bank for yuan in Singapore. China sees Singapore as its regional partner for the extension of yuan internationalisation. The aim is that the emergence of new offshore centers will expand the existing regime instead of creating competing systems.

So far, Hong Kong has had a good eight-year head start and remains the dominant offshore center of the Chinese currency, handling around 80pc of offshore trading.

Once the clearing mechanism is set up in Singapore, there will be greater transparency in the movement of yuan funds. Singapore will be the gateway for China in the Southeast Asia, which provides a platform for Beijing to facilitate wider use of yuan in trading with Southeast Asian nations.

London and the Chinese renminbi 中国人民币

At present, a cross-border trade settlement scheme is driving liquidity into 人民币 offshore markets. The size of the offshore 人民币 liquidity pool a financial centre can generate, therefore, largely rests on bilateral trading volume. Compared with Hong Kong, which had $283.5bn of bilateral trade with mainland China in 2011, the UK’s trade with China was only worth $58.7bn. Further, the 人民币 is barely used as a trade settlement currency in UK-China trade. 

London is therefore limited by liquidity concerns, even though it hosts deposits of 人民币109bn. This issue will remain a challenge until the 人民币 becomes fully convertible as an international currency. The City could perhaps attract a significant volume of 人民币 resources through its advantage in global foreign exchange trading. But, for as long as the cross-border trade settlement scheme remains the major pillar in China’s 人民币 strategy, the City will not be a become a big player. 

A second stumbling block is the technical difficulty caused by the 人民币 clearing system. In the offshore 人民币 market, up until now only Hong Kong has been thoroughly equipped with both the 人民币 real-time gross settlement system, which allows swift, large fund transactions, and with a人民币 clearing bank, Bank of China (Hong Kong). 

London is lacking this critical 人民币 settlement system. It also doesn’t have a local人民币 clearing bank. Even if the City is in a good position to gear up global demand, the majority of those offshore 人民币 transactions still have to be conducted via Hong Kong. As a result, market practitioners see less benefit in concentrating their 人民币 businesses in London. Multinational corporations can simply shift 人民币 deals to Hong Kong branches (or perhaps to Singapore). In other words, until London has the requisite financial infrastructure, it will struggle to be more competitive. 

Thirdly, and perhaps of most concern, is the differing understanding of Beijing’s 人民币 internationalisation strategy in the Bank of England and the UK Treasury. China’s 人民币 strategy is a policy-driven process, with deep public sector involvement. The most evident example is the role of bilateral currency swap agreements. In Beijing’s view, a bilateral agreement between central banks has profound implications beyond the intrinsic value of the swap itself. It represents a will to jointly develop 人民币 offshore business at the level of officialdom.

However, the Bank of England sees limited value in establishing a line in currency swaps. The 人民币 is not yet fully convertible, and the size of its global offshore market is neither large or liquid. The Bank insists that the private sector should take the initiative. It therefore remains reluctant to get involved in the swap issue. The UK Treasury, on the other hand, is making great efforts to initiate policy dialogue with Beijing and Hong Kong. It wants to push the City towards the front tier of the 人民币 offshore business, and thereby boost the economy through a closer relationship between China and the UK.

While the development of the offshore 人民币 market remains contingent upon China’s financial reform process, whether the Bank of England and the UK Treasury can take collective action will ultimately determine the City’s future in the 人民币 internationalisation game. The Geo-Trade Blog will continue to follow closely new developments on the internationalisaltion of the Chinese renminbi  中国人民币.

China and US Shipping in the Inland Riverways in 21st Century

Yangtze River 长江, one of China's most important riverways

China has just expanded Yangtze River 长江 shipping capacity 

The shipping capacity of the Yangtze River 长江, China's longest river, has just been vastly expanded as a result of a decade-long effort to dredge and deepen the river. The river's main course whose shipping volume has just reached 1.78 billion tonnes in 2012,  four times the amount of 2003, has had an average annual growth rate of 10pc. 

Map of China's main riverways with Yangtze River 长江 below 
and Yellow River 黄河 above 

 

The revamped riverway now allows heavier ships to reach the upstream city of Chongqing 重庆, even during periods of dry weather. Furthermore, the depth of the river's 370-km Chongqing-Yibin stretch has been increased to 2.7 meters from the original 1.8 meters. Heavier ships will now be able to sail on the middle reaches of the river located between the cities of Yichang 宜昌 and Wuhan 武汉 in central China's Hubei Province. Heavy vessels will also be able to cruise on a downstream section of the river located in east China's Jiangsu Province.

But in the US...  

In New Orleans, the industrial Canal Lock connects two of America’s highest-tonnage waterways: the Mississippi River which handles more than 6,000 ocean vessels, 150,000 barges and 500m tonnes of cargo each year, as well as much of its grain, corn and soyabean production and the Gulf Intra-coastal Riverway, which runs from refinery-rich south-eastern Texas to Florida. Ships pass from one to the other via a lock that was built in 1921. Its replacement was authorised in 1956. Construction on the replacement was authorised in 1998, and then stalled by lawsuits. The most optimistic predictions of the Army Corps of Engineers, which maintains America’s inland riverways, see the new lock being completed in 2030.

Map of the inland Riverways in the Mississippi River Basin

As shipping to and from the US increases, so too will the use of these inland riverways, which are in most cases desperately in need of an upgrade.The American Society of Civil Engineers estimates that underinvestment in the US' inland waterways cost American businesses $33 billion in 2010, and that without significantly increased investment those costs could rise to $49 billion (in constant dollars) by 2020.