The rise of the Chinese Renminbi is an opportunity for Qatar

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The rise of the Chinese Renminbi is an opportunity for Qatar

  1. 1. Page 1 of 2 Economic Commentary QNB Economics economics@qnb.com.qa July 20, 2014 The rise of the Chinese Renminbi is an opportunity for Qatar China is opening up to the world and is promoting the wider global use of its currency, the Renminbi (RMB). This could present opportunities for other countries, including Qatar, to benefit. China is already the largest exporting nation and the liberalization of the exchange rate, interest rates and the capital account have begun. Restrictions on the exchange rate have gradually been eased. In March 2014, the trading band was widened for the third time since 2007, from 1% to 2%, increasing the amount the RMB is permitted to deviate from the level set daily by the Chinese central bank, the People’s Bank of China (PBC). The authorities have stated the objective to gradually move towards a fully floating exchange rate within 2-3 years as part of reforms to liberalize the capital account. Currently, restrictions on the capital account limit investment inflows to quotas on portfolio investment for permitted foreign institutional investors. Investment outflows are tightly controlled with the main exception that transfers between the Shanghai and Hong Kong stock markets have been permitted since April 2014. As part of the gradual liberalization of the capital account and the exchange rate, it is official policy to promote the greater international use of the RMB for global trade finance, investment, foreign exchange transactions and payments. As a result the rise of the RMB onto the global stage is already well underway. Its share of global trade finance has risen swiftly from 2% in January 2012 to 8% currently, overtaking the Yen and the Euro to become the second most-widely used currency for trade finance after the US dollar (which accounts for 80%). Trade settlement denominated in RMB has grown by over seven times in two years, from around USD100bn in 2011 to over USD700bn in 2013. Average daily RMB trading turnover has risen from USD34bn in 2010 to USD120bn in 2013, making it the ninth most traded currency globally. In terms of total global payments, the value of RMB transactions have more than doubled over the last year. Furthermore, the internationalization of the RMB has provided the basis for deepening offshore RMB capital markets. Offshore bond issuance in RMB (Dim Sum Bonds) has risen rapidly. It started in 2007 and during 2013 issuance reached USD54.2bn. In the first quarter of 2014 alone issuance was over USD30bn. Almost all of the issuance is corporate. The authorities are actively supporting the internationalization of the RMB. They have signed USD400bn of swap agreements with over 30 central banks. The largest agreements are with Hong Kong, Korea, the Euro Area, Singapore and the UK. The aim is to improve liquidity in offshore RMB funding markets, supporting trade finance and deepening capital markets denominated in the currency. A number of cities are seeking to benefit from the internationalization of the RMB by establishing themselves as financial hubs for RMB transactions. There is a large opportunity for the financial sector to capture income, fees and commissions from growing offshore RMB- denominated business through financing trade, foreign exchange transactions, issuing debt, taking deposits and issuing loans. The Chinese authorities have supported the establishment of offshore centers for RMB transactions. Five offshore jurisdictions now have a clearing bank with direct links to the
  2. 2. Page 2 of 2 Economic Commentary QNB Economics economics@qnb.com.qa July 20, 2014 PBC and onshore Chinese interbank markets: Hong Kong (since 2003), Macau (2004), Taiwan (2012), Singapore (2013), London (2014) and Frankfurt (2014). The PBC announced in June that it would also be designating clearing banks in Paris and Luxembourg. The clearing banks typically have responsibility for settling RMB transactions and acting as an intermediary between foreign banks and the PBC. Rise of the RMB and Qatar-China Trade Sources: Bloomberg, Swift and QNB Group analysis For Qatar, an agreement between the Qatar Central Bank (QCB) and PBC was renewed in April 2014, which permits the QCB access to onshore Chinese interbank markets to purchase bonds for Qatar’s foreign exchange reserves. Qatar can benefit from the internationalization of the RMB by leveraging links that already exist with China. Qatar’s LNG exports to China rose by 35.5% in 2013 to 6.8m tons, accounting for 8.7% of total Qatari LNG exports. China is in need of LNG to combat high pollution from the coal-intensive power sector. LNG exports to China are, therefore, likely to continue surging. China is also the largest source of imports into Qatar. Contacts Joannes Mongardini Head of Economics Tel. (+974) 4453-4412 Rory Fyfe Senior Economist Tel. (+974) 4453-4643 Ehsan Khoman Economist Tel. (+974) 4453-4423 Hamda Al-Thani Economist Tel. (+974) 4453-4646 Ziad Daoud Economist Tel. (+974) 4453-4642 Disclaimer and Copyright Notice: QNB Group accepts no liability whatsoever for any direct or indirect losses arising from use of this report. Where an opinion is expressed, unless otherwise provided, it is that of the analyst or author only. Any investment decision should depend on the individual circumstances of the investor and be based on specifically engaged investment advice. The report is distributed on a complimentary basis. It may not be reproduced in whole or in part without permission from QNB Group. 400 500 600 700 800 0 2 4 6 8 2012 2013 CNY cross-border trade settlement CNY rank as world trade financecurrency Qatar LNG Exports to China Qatar Imports fromChina USD755bn 4th 2nd USD467bn 6.8m t/y 5.0m t/y USD1.8bnUSD1.3bn

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