Renminbi internationalisation on track

Renminbi internationalisation on track

The internationalisation of the renminbi remains on track, with China currently issuing RMB debt offshore, says AXA Investment Managers.


AXA Investment Managers fund manager Mark Tinker said China is now issuing RMB debt in London, which is part of the steady internationalisation of the currency and opening up of the country's capital account.

Commentators have noted concern regarding the development of an onshore debt bubble, however, Mr Tinker said this argument misses the "big picture". 

“China is the second-biggest economy in the world and it currently has a very under-developed capital market. Many of the debt issuers are property companies, taking advantage of easier regulation and in many cases swapping from more expensive offshore debt (which is a good thing).

"As our colleagues here in the rates and credit team point out, some developers can achieve an almost halving of their interest cost by moving back onshore and with a removal of the currency mismatch thrown in," he said. 

Moreover, Mr Tinker said the bond connect plans – the development of trading infrastructure to connect the Hong Kong and Shenzhen market – are now being given a higher priority, with infrastructure possibly in place within six months. 

"This is part of connecting Chinese investors internationally and international investors to Chinese bond markets and is another twist in the Rubik's cube of financial and economic reform," he said. 

Mr Tinker also pointed out that China has likely secured support for Special Drawing Rights (SDR) inclusion by agreeing to "make the right noises" on climate change. 

According to Mr Tinker, the narrative on China is turning more positive as a result of policy changes.

"The upcoming five-year plan will certainly have focused people's attention on the variety of levers that the Chinese authorities can pull.

"As will the recognition that China will not be following the standard Wall Street prescription for economic growth – quantitative easing (QE) – but instead will be pursuing a policy of market-based reform and infrastructure based stimulus," said Mr Tinker. 

 

 

 

Renminbi internationalisation on track
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