China’s Renminbi (RMB) will top 50% of China’s total trade by 2020, thus calling for broader trade partners, according to global lender HSBC.
“We now make another forecast — RMB trade settlement will top 50% of China’s total trade by 2020, thrusting the currency into the major leagues,” Angus T Y Tsang, director, RMB Internationalisation, HSBC Asia Pacific, said here yesterday. RMB trade settlement has risen from 12% of total trade at the end of 2012 to 22% by the end of 2014, he said.
“The key is to promote greater RMB usage for trade settlement with a broader group of trade partners,” he said, adding currently, a large proportion of RMB trade settlement is conducted in Asia, with Hong Kong accounting for the lion’s share.
Finding that interest is increasing in Singapore, South Korea, and more recently in European countries, as well as the US, Tsang said the next important step is to deepen existing RMB trade settlement practices among trade partners other than Hong Kong and to broaden the currency’s reach.
As the currency goes global, he said connecting new RMB centres to the mainland and also linking them to each other will increase the pace, depth and breadth of RMB internationalisation.
Highlighting that the RMB has room to expand its influence in services and investment settlement, he said around a quarter of China’s services trade is already settled in RMB. “This portion will increase further as Chinese travel and spend more abroad,” he said, adding outward investment is set to grow faster in 2015 and beyond on the back of the continued policy push for Chinese firms to upgrade their production chain and invest abroad.
“We believe the New Silk Road initiative, started in 2014, will be a major catalyst for driving manufacturing and construction related services and investment outflows,” according to Tsang.
China has been a net exporter of capital for a long time. However, data for 2014 show that foreign direct investment into China grew by 1.7% year-on-year, whereas China’s outward direct investment grew by 10.9%.
“We think the globalisation of China’s direct investment capital flows will become an important factor behind the internationalisation of the RMB.” he said.