China's expansion of global investment is increasingly likely to promote the internationalization of the yuan.
On the 11th (local time), the South China Morning Post (SCMP) in Hong Kong said that Xiang Songzuo, former chief economist at the Agricultural Bank of China, said, "As more corporations go overseas, the Chinese government will step up measures to support transactions," adding, "The internationalization of the yuan is being accelerated not only by the government's strategic will but also by corporate demand."
Currently, Chinese corporations must obtain government approval for overseas direct investment. While maintaining controls to curb capital outflows, the Chinese government is encouraging international use of the yuan. Economist Xiang said, "If the investment is legal, the government will actively support going abroad." He projected that the Central Bank would avoid sharp exchange-rate swings, maintain a stable policy stance, and continue its internationalization policy.
According to a Bank of China report, China's cross-border yuan settlement last year totaled about 64.1 trillion yuan (about 1,217.9 trillion won), with capital account settlements accounting for 74.6%. Government statistics also showed that China's overseas direct investment last year rose 8.4% from a year earlier to $192.2 billion (about 2,652 trillion won), the world's third-largest level. Economist Xiang said, "Not only domestic corporations but also overseas investors are showing interest in yuan-denominated asset," adding, "In particular, demand is increasing in the Hong Kong market for yuan-denominated stocks and bonds (where both transactions and settlements are in Chinese yuan)."
However, he noted, "The supply of yuan financial products in Hong Kong is still not sufficient." To supplement this, he expected China to spell out an expansion of yuan internationalization in long-term plans such as the 15th five-year plan and to increase related products and systems. Economist Xiang said, "It is necessary to encourage mainland corporations to list in Hong Kong and to expand the model that allows investors to choose to trade stocks in yuan or the Hong Kong dollar."
He also projected that the Chinese government would expand currency swap agreements with Central Banks in regions such as Africa, Europe, and the Americas and increase the size of existing swap lines. The move is expected to make trade and investment easier by allowing corporations in each country to settle directly in yuan from their own currency without going through the U.S. dollar.
At the end of Oct., the Chinese government clarified its direction in the "proposal for the 15th five-year plan," a draft of the national development strategy for the next five years, by changing the existing phrase "promote prudently and gradually" to "promote yuan internationalization." It also presented opening the yuan capital account and building a secure cross-border settlement system as key tasks for becoming a financial powerhouse.
Economist Xiang said, "The internationalization of the yuan is being driven more by corporations' investment demand than by the Chinese government's political goals," adding, "The government is likely to take additional measures to support transactions."