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Chinese Renminbi in the Caribbean- Opportunities for Trade, Aid and Investment

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An overview of the Chinese Renminbi in the Caribbean-Opportunities for Trade Aid and Investment presented by Dr. Stephan Maier, Economist, CDB on July 10, 2017 at a conference discussing the use of the Chinese Renminbi in the Caribbean held at the Hilton Barbados Resort.

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Chinese Renminbi in the Caribbean- Opportunities for Trade, Aid and Investment

  1. 1. Chinese Renminbi in the Caribbean – Opportunities for Trade, Aid and Investment Dr. Stephan Maier, Economist, Caribbean Development Bank Hilton Hotel Barbados 10 July 2017
  2. 2. AGENDA Background on China and the Caribbean Potential benefits from use of RMB Recent macro-economic developments limiting use of RMB 2
  3. 3. A LITTLE BIT OF BACKGROUND • Historically China has engaged relatively little with the Region, but this changed with the “Going out” policy in 1999 • The first Chinese official policy paper on LAC in 2008 has brought engagement to another level 3
  4. 4. GOODS TRADE ROSE STRONGLY • Trade increases • Still, effects on employment levels, wage levels, income distribution in BMCs need monitoring • Reduced income inequality for Central and Southern American commodities exporters in 2000s (IDB, 2017) USD mn CDB BMCs Exports CDB BMCs Imports 2000 9 158 2014 168 1,563 Annual change 22.9% 17.8% Source: UN COMTRADE (2017) 4
  5. 5. FDI LEVELS STILL MODEST • FDIs rose tenfold from 2005, remaining still low however • Main sectors targeted were agriculture, tourism, mining, energy • Are Infrastructure, ICT and renewable energy the future? USD mn 2005 2013 Guyana 6 225 Suriname 13 112 Cuba 34 111 Jamaica 0 80 Caribbean 81 605 Source: IDB (2016) 5
  6. 6. WHAT’S IN STORE FOR THE FUTURE? • Geopolitical picture: “US retreat, China lead”. Example: US has abandoned TPP* and China is pushing RCEP^ • Caribbean targets services sector growth: tourism, ICT, financial services • Tourism: Miami-Dade investor trip to China, Jamaica at Shanghai trade show 6 * Trans-Pacific Partnership ^ Regional Comprehensive Economic Partnership
  7. 7. TRADE FACILITATION WITH RMB • Chinese exporters could give discounts of up to 3% (PBC survey) • Small states are very open economies, should benefit in goods and services trade from RMB, if it becomes a success 7
  8. 8. ACCESS TO GLOBAL FINANCIAL SERVICES • Number of CBR’s of Chinese banks increasing strongly • Chinese banks subject to same AML/CFT standards as Western banks • Literature suggests though they were fined less by global regulators • Chinese payment systems became more efficient No. CBRs China Europe 2009 65 123,056 2016 2,246 70,292 change +2,181 -52,764 Source: Accuity (2016) 8
  9. 9. RMB SHARE IN GLOBAL PAYMENTS 5.8 6.2 6.6 7.0 7.4 0 2 4 6 8 10 Oct-10 Oct-12 Oct-14 Oct-16 RMB share (%) USD/RMB (rhs) 9
  10. 10. CHINESE GDP SLOWING, CURRENT ACCOUNT LOWER 0 2 4 6 8 10 12 6 8 10 12 14 16 real GDP growth (%) current account (% GDP, rhs) 10
  11. 11. CHINESE RESERVES FALL AMID CAPITAL OUTFLOWS -200 -100 0 100 200 0 1,000 2,000 3,000 4,000 5,000 Jan-06 Jan-09 Jan-12 Jan-15 FX reserves (USD bn) capital flows (USD bn, rhs) 11
  12. 12. LEVERAGING IN THE ECONOMY CONTINUES 0 40 80 120 160 Dec-05 Dec-08 Dec-11 Dec-14 Corporate Debt Household Debt Government Debt percentage of GDP 12
  13. 13. INTERBANK LENDING RATES RISE STRONGLY 0 2 4 6 8 10 Jan-10 Jan-12 Jan-14 Jan-16 SHIBOR ON PBOC 2Y lending rate 13
  14. 14. CONCLUSION • RMB could help to boost trade, tourism, access to global financial services • However, business environment and financial architecture in our Region need improvement to reap the benefits • Systemic risks and liquidity risks inherent to RMB need monitoring also • Up to Caribbean business community to decide whether RMB will play broader role 14

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