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From Greenback to Renminbi –
the Internationalisation of CNY
by Peter Wong, Chairman, IACCT (China)
China entered the ‘brave new world’ in 2001 when it became the latest member of the World Trade Organization (WTO). State-owned banks at the time were saddled with non-performing loans. Foreign exchange reserves were at a modest US$200bn level. Standard & Poor’s then assigned a BBB sovereign credit rating to China.
A decade later, China became the world’s second largest economy with the most sizeable foreign exchange reserves (US$3.2tr as of August 2011). All the Big Four state-owned banks are listed with CAR above the 11.5% minimum set by the domestic regulator. ICBC ranks No.1 among banks globally and has set its goal to achieve 10% of global business by 2016. Standard & Poor’s have assigned a double-A-minus rating on China.
Towards a market economy
China is in dynamic mode and change is constant. As it moves from a state-controlled central planning to a market-based economy, policy tools are gradually moving towards fine-tuning rather than achieving specific quantifiable goals. China continues to experiment, to innovate, to invest and to adjust. The expectation is changing for the better.
With a per capita income of less than US$10,000, China is going through a process of metamorphosis – shifting its future focus from quantity to quality of growth (in areas including environment protection, low carbon, improved income equality, social mobility, a social security safety-net, medical and retirement issues), development of the private sector, a more balanced export and domestic sector and resolving the issues arising from rapid urbanisation. There is ample room for commercially viable technology and knowledge transfer.
A case for global economic ties with China
China is in spending mode (supported by high savings) whereas the US and Europe are in deleveraging mode. Global trade and investment relations with China should therefore expand instead of contract.
The western world is ahead of China on the learning curve of social and economic development. Knowledge transfer (overseas education for Chinese students) and Overseas Direct Investment (ODI) by Chinese enterprises are both set to expand at a rapid pace.
