Experts at Chatham House and the Institute of World Economics and Politics (IWEP) at the Chinese Academy of Social Sciences (CASS), with support from the UK Foreign & Commonwealth Office, have researched the feasibility of using the RMB offshore market to provide financing for Chinese infrastructure projects in the context of the Belt and Road Initiative, consulting experts and practitioners in both China and the UK.
Since 2009, China has been engaged in a process of encouraging greater use of their currency internationally in order to facilitate their trade and reduce their dependence on the US dollar. This process has historically focused on expanding the use of the renminbi in trade and payments settlements, and was conducted in an environment where the renminbi was steadily appreciating and China was striving to attract inward direct investment.
However, since 2015, many of the assumptions underpinning this transition have ceased to apply. The renminbi is no longer widely expected to appreciate by markets. But the addition of the renminbi to the IMF’s SDR basket has given the renminbi greater credibility in the international arena. In this context, the internationalization of the renminbi is entering a new phase, and the offshore bond market that has supported it is growing less quickly.
Meanwhile, China’s new programme to encourage greater investment in infrastructure – the Belt and Road Initiative – has taken on a new prominence: the need to provide billions of dollars in infrastructure investment will create new avenues for both Western and Chinese investment, which will have to be mediated with sophisticated financing instruments. London’s role as a renminbi hub and a centre for international investors makes this an ideal opportunity to develop London’s role in both infrastructure financing and renminbi-denominated investment.
Experts at Chatham House and the IWEP at CASS, with support from the UK Foreign & Commonwealth Office, have researched the feasibility of using the RMB offshore market to provide financing for Chinese infrastructure projects in the context of the Belt and Road Initiative, consulting experts and practitioners in both China and the UK. This project aims to examine how these new factors, particularly China’s commitment to the Belt and Road initiative, will impact China’s strategy for internationalization of the renminbi, as well as how London’s financial centre could best develop in light of these new challenges and opportunities.