At a meeting convened by the Standing Committee of the Political Bureau of the CPC Central Committee on Thursday, it was proposed for the first time that China make full use of its huge market and potential domestic demand to build a new development model that promotes growth by forming and leveraging a double circulation system at home and abroad.
The new development model or strategy requires that China remain open to the external world; that it be committed to promoting globalization and be willing to cooperate with the rest of the world in sustaining and further developing international industrial and supply chains. At the same time, China will build domestic industrial clusters to ensure self-reliance in preparation for the extremely harsh external economic and political situation that may occur in the future as the United States boosts efforts to contain China’s development.
Concern about the external economic and political situation is not unwarranted. Also on Thursday, when asked by Fox Business Network on how he would deal with China, US President Donald Trump replied that “there are many things we could do; we could do things; we could cut off the whole relationship.” On this occasion, he was not deemed to have made an indiscreet remark. Instead, it was generally perceived as the mainstream opinion among decision-makers in the US. Although America may not be able to decouple with China unilaterally, China must plan for the worst.
In the wake of the rapid shift in the global financial, economic and political landscape, Beijing has adjusted the timetable for internationalization of the renminbi as well as the establishment of an international financial center originally scheduled for 2020 in Shanghai. Recent updates show that China’s financial markets will be open to the world via two channels: One is the promotion of the renminbi settlements for economic and trade exchanges with other countries and foreign enterprises; the other is to further expand and improve offshore renminbi markets.
Beijing has always stressed that China has no intention of competing with the US, nor will it vie for global supremacy. Replacing the US dollar with a Chinese currency is not on China’s agenda. Nevertheless, China has to prepare for the possibility that Washington might force China out of the international multilateral settlement system, which is dominated by the US dollar, or even deny Chinese enterprises access to the US financial market and obstruct the issuance of dollar bonds by the Chinese government and Chinese companies. Beijing must, therefore, strive to expand renminbi offshore markets, while enhancing the function of the renminbi as a settlement currency in China’s foreign trade.
This year, China’s largest steel group, Baowu Steel, has settled its first cross-border transaction in renminbi with each of the three major global iron ore suppliers; namely, Vale of Brazil, BHP, and Rio Tinto of Australia. To promote the settlement role of the renminbi in international trade, commodity futures exchanges in China are continually issuing massive slots of commodity futures to achieve a greater say in pricing these commercial products on the international market. What is particularly worth noting is that on March 26, 2018, the most crucial crude oil futures were officially listed on the Shanghai International Energy Exchange under the Shanghai Futures Exchange — implying that the renminbi has achieved a major breakthrough in pricing crude oil. Subsequently, on May 4 the same year, iron ore futures officially opened to overseas traders. This means foreign buyers can now directly purchase iron ore with renminbi on China’s futures exchanges.
The SAR government and the Hong Kong financial sector must pay close attention to ongoing developments in Sino-US relations, the prompt adjustments by the central government in renminbi internationalization, and the opening-up of the country’s financial markets.
We must distance ourselves from the unsophisticated notion that Hong Kong is impervious to ever-evolving Sino-US relations. As an inalienable part of China, Hong Kong has to stand with its motherland in this rivalry. As the US is stepping up its efforts to contain China’s development, Hong Kong must race to reposition itself from being a bridge between China and the US-dominated international financial market to being the forefront of China’s financial liberalization. Specifically, as the largest offshore renminbi market in the world, Hong Kong has to promote the renminbi as the currency for settling international transactions. It has been suggested that the central government allow as many foreign-trade transactions as possible to be settled in renminbi via Hong Kong’s banking system. Correspondingly, Hong Kong’s futures market should establish and expand ties with its mainland counterparts. This includes the establishment of a mechanism similar to the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect implemented in the securities market. That will facilitate the renminbi to have a greater say in pricing international commodities.
Also on Thursday, the People’s Bank of China published on its website a document, jointly issued by the central bank, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission and the State Administration of Foreign Exchange, on how financial markets should support the Guangdong-Hong Kong-Macao Greater Bay Area development. These authorities will make an effort to consolidate Hong Kong’s status as an international financial center. At the same time, the document advises the facilitation of cross-border trade, investments and financing within the Bay Area, as well as the facilitation of the exchange of local and foreign currencies and cross-border circulation. I believe Hong Kong should take the lead in promoting the free exchange of Hong Kong dollars with the renminbi.
The author is a senior research fellow of China Everbright Holdings.
The views do not necessarily reflect those of China Daily.
