Renminbi rising a new global monetary system emerges

WEBFFIRS 12/03/2015 16:36:13 Page ii WEBFFIRS 12/03/2015 16:36:13 Page i Renminbi Rising WEBFFIRS 12/03/2015 16:36:13 Page ii WEBFFIRS 12/03/2015 16:36:13 Page iii Renminbi Rising A New Global Monetary System Emerges WILLIAM H OVERHOLT GUONAN MA CHEUNG KWOK LAW WEBFFIRS 12/03/2015 16:36:13 Page iv This edition first published 2016  2016 Fung Global Institute Limited The right of William H Overholt, Guonan Ma and Cheung Kwok Law to be identified as the authors of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988 Registered office John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at www wiley.com All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher Wiley publishes in a variety of print and electronic formats and by print-on-demand Some material included with standard print versions of this book may not be included in e-books or in print-on-demand If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com For more information about Wiley products, visit www.wiley.com Designations used by companies to distinguish their products are often claimed as trademarks All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners The publisher is not associated with any product or vendor mentioned in this book Limit of Liability/Disclaimer of Warranty: While the publisher and authors have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose It is sold on the understanding that the publisher is not engaged in rendering professional services and neither the publisher nor the authors shall be liable for damages arising herefrom If professional advice or other expert assistance is required, the services of a competent professional should be sought Library of Congress Cataloging-in-Publication Data Names: Overholt, William H., author Title: Renminbi rising : a new global monetary system emerges / William H Overholt, Guonan Ma, Cheung Kwok Law Description: Chichester, West Sussex, United Kingdom : John Wiley & Sons, Inc., 2016 | Includes bibliographical references and index Identifiers: LCCN 2015038330 | ISBN 978-1-119-21896-8 (cloth) Subjects: LCSH: Renminbi | Finance—China | China—Foreign economic relations Classification: LCC HG1285 O94 2016 | DDC 332.4/50951—dc23 LC record available at http://lccn.loc.gov/2015038330 A catalogue record for this book is available from the British Library ISBN 978-1-119-21896-8 (hardback) ISBN 978-1-119-21898-2 (ePDF) ISBN 978-1-119-21897-5 (ePub) ISBN 978-1-119-21899-9 (obk) Cover design: Wiley Cover images: Dragon image  ly86/iStockphoto; Gold image  mexrix/Shutterstock Set in 11/13pt TimesLTStd-Roman by Thomson Digital, Noida, India Printed in Great Britain by TJ International Ltd, Padstow, Cornwall, UK WEBFFIRS 12/03/2015 16:36:13 Page v To LIU Ming Kang His reformist integrity inspires us WEBFFIRS 12/03/2015 16:36:13 Page vi WEBFTOC 12/04/2015 8:55:38 Page vii CONTENTS List of Figures xi List of Tables xiii Foreword xv Acknowledgments xvii About the Author xix CHAPTER Internationalizing the RMB The Conditions for Becoming a Global Currency Business and RMB RMB-Product Markets Reserve Currency The Emerging Monetary Order 10 11 14 16 CHAPTER The Rise and Fall of Currencies – Historical Lessons for the RMB 21 Risks in International Monetary System Transitions The Role of Eurodollars in the 2008 Global Financial Crisis 2008: Year Zero for a New International Monetary System? Conditions for Currency Internationalization: Market Demand and Institutional Supply Institutional Inertia and Disruptive Events 23 26 27 30 35 vii WEBFTOC 12/04/2015 8:55:38 Page viii viii CONTENTS Offshore Currencies and International Liquidity Current International Reactions to the RMB’s Rise RMB Internationalization Conclusion References CHAPTER Economic and Institutional Foundations for the Rise of the RMB Economic Foundation Surprises New Growth Engines Capital-Account Liberalization Institutional Quality Conclusion References CHAPTER Can the Chinese Bond Market Support a Potential Global Renminbi? Overview of the Chinese Bond Market Chinese Treasury Market in International Perspective A Dilemma and a Bold Public-Debt Consolidation Scheme Government-Backed Debt Securities Conclusion References CHAPTER Waxing and Waning of the Chinese Stock and Banking Markets Chinese Stock Market: Growing Despite Immaturity Flaws A Massive Chinese Banking Market Opening Conclusion References CHAPTER Rising FX Turnover of the RMB Could the Market Accommodate More Global Currencies? What Determines the FX Liquidity of the RMB? 36 41 44 46 47 49 49 58 60 62 68 80 81 83 84 91 98 103 107 107 109 109 125 133 133 135 135 138 WEBBINDEX 12/03/2015 16:12:13 Page 215 INDEX Abe, Shinzo 75 ‘Abenomics’ 75, 96, 102–3 accounting systems 71–2, 115, 117–18, 124–5 Africa 2, 163–7 aging population 3, 51–3, 60–1 Agricultural Development Bank of China 106, 117, 127 AIM 113 Albania 187 Aliber, Robert 196 allocation of scarce resources 3–4, 9, 40–1, 51–2, 61–81, 124–5, 133, 202–6 Alnet 173–4 Alstom 172–4, 178 anti-monopoly campaigns 56–7 arbitrage 11, 99–100, 113–15, 167–9, 176–8 Argentina 188 Armenia 189 Asia Symbol 175 Asian Development Bank (ADB) 18, 42, 196, 203–5 Asian financial crisis of 1997–1998 5, 19, 32–3, 44, 45, 62–3, 68, 72, 76, 79, 140, 179–80, 203–4 Asian Infrastructure Investment Bank (AIIB) 6, 15, 17, 18, 42, 43–4, 132–3, 161, 196, 203–6 asset-backed securitizations 86, 87, 88–91, 104–7, 196–7 assets, bank assets 125–33 Association of Southeast Asian Nations (ASEAN) 161–4 AUD 137–50, 153–67, 181–2, 194 audits 71–2, 117–18 Australia 35, 63–5, 137–50, 153–67, 181–3, 186–90, 194–8 bad debts 25, 56, 126–7 balance sheets 52, 54–7, 140–50, 168–9, 183, 196–7 Bangkok 164–5 Bank of China 117, 127, 159–69 Bank of Communications 127 Bank of East Asia 130, 131 Bank of England (BoE) 24, 29–30, 75, 180–1, 187–90, 194–5 Bank for International Settlements (BIS) 63, 77, 78–9, 84, 92, 136–47, 209 Bank of Japan (BoJ) 63, 73, 75, 95–6, 180–1, 194, 211 Bank of Korea 76, 186–90 banks 2, 3–5, 6–9, 10, 13–15, 24–5, 27–35, 44, 49–81, 85–6, 109, 125–33, 160–9, 197–8 Banque de France (BDF) 181–2, 191 Barclays 80 barriers to market entry 61–2, 127–8 Basel III 85–6, 127–8, 191 basis risks 149–50 Belarus 184–90 215 WEBBINDEX 12/03/2015 16:12:13 Page 216 216 Bernanke, Ben 74 bilateral trades 142–50, 160–7, 183–98 Bitcoin 204 ‘black swan’ crisis events 16, 49–50, 58–60 BNP Paribas 17 bonds 5, 7–10, 11, 13–14, 16, 17, 24–5, 32, 53, 58–60, 63, 64–81, 83–108, 115–16, 125–33, 153–69, 180–98, 202–6, 209 reforms 7–8, 58–60, 64–9, 83–107, 202–4 brand aspects of currencies 33–5, 45–6 Brazil 6, 53–4, 77, 141, 148, 161, 164–5, 187–90, 203–4 Bretton Woods institutions 1–2, 17–19, 25–6, 32–3, 43–4, 195–6, 203–5 BRICS Bank see New Development Bank British Empire 31–2 bubbles, problems 3–4, 9, 18, 32–3, 52–3, 56–7, 58–60, 63–4, 122–5, 204–5 budgets 6, 32, 90–1, 94–5, 98–103 Burns, Robert 171 businesses 10–11, 12–13, 35, 37–8, 41–3, 46, 47, 136–7, 171–8, 201–6 BVI 158 CAD 137–50, 153–67, 181–2, 190, 194 callable/puttable bonds 106 Canada 16, 29, 43, 84–5, 93–4, 110–13, 137–50, 153–67, 181–2, 188–90, 194–8 capital accounts 4–8, 12–13, 31–3, 45–7, 55–9, 61–8, 80–1, 92–8, 101–3, 124–5, 131–3, 135, INDEX 140–1, 149–50, 151, 152–3, 168–9, 197–8, 211 capital flows 4, 11, 12, 13–14, 24–5, 31–3, 44, 55–7, 62–8, 91, 101–3, 135, 140–1, 144–50, 151, 197–8, 202–6 capital gains, taxes 106 capital markets 2, 3–6, 7–11, 12–14, 32–4, 45–7, 50–1, 62–8, 83–107, 109–25, 133, 138–43, 202–6 see also bonds; equities; stock reforms 2, 3–6, 8–10, 11, 12–14, 45–6, 50–1, 62–8, 197–8, 202–6 cash-pooling scheme 132–3 catch-up manufacturing-led economic growth 2–3, 50–3, 56–7 CDs 13, 156–69, 210 Central Asia, OECD kinds of developments central banks 2, 6, 8, 15, 22, 37–41, 49, 68–81, 94–5, 126–33, 140, 166–7, 181–98, 205–6 see also Bank of ; European Central Bank; Federal Reserve ; People’s Bank of China Changhong Electronics 175–8 CHF 137–50, 153–67 Chiang Mai Initiative 78–9 Chicago Mercantile Exchange (CME) 43 Chile 189 China see individual topics China Banking Regulatory Commission (CBRC) 68–9, 85–6, 88–90, 127–9, 131–2 China Construction Bank 117 China Development Bank (CDB) 6, 13, 18, 87–90, 98, 104–6, WEBBINDEX 12/03/2015 16:12:13 Page 217 Index 132–3, 160–1, 164–5, 198, 203–4, 205–6 China International Payment System (CIPS) 168, 211 China Metal Recycling 71 China National Advanced Payment System (CNAPS) 166–8 China Securities Finance Corporation (CSF) 122–3 China Securities Regulatory Commission (CSRC) 68–9, 88–90, 111–13, 115–18, 123 Chinese government bonds (CGBs) 7–8, 53, 83–107, 154–5, 167–9, 191, 198 Chinese yuan (CNY) 37–41, 75–81, 137–50, 153–69, 209 ChiNext Board 116–19 Citibank 164 Clearing House Interbank Payments System (CHIPS) 168 clearing and settlement infrastructure 12, 13, 17, 110–13, 152–3, 156–69, 171–8, 190–8 CLS 17 collateralized-credit instruments 196–7 commercial banks 6–7, 53, 78–9, 85–6, 89, 99–103, 115–16, 122–3, 126–33, 154–5, 178, 191–8 commercial paper 209 commodities 13–14, 21–2, 24–5, 35, 194–8 communications infrastructure 132–3, 191 communism 50–1, 71 Communist Party 71 competition 61–2, 92–3, 107, 126–8, 130–3, 160–1 concluding reflections 201–6 conditions for becoming a global currency 2–10, 11, 12–14, 21–3, 217 30–5, 46–7, 49–81, 83–107, 109–25, 133, 138–43, 181, 195–8, 201–6 conservatives, reserves 192–3 consumer price index (CPI) 75–8 convertibility date estimate, RMB 4, 15, 67–8, 80–1, 140 copper 13 corporate bonds 7–8, 24–5, 58–60, 69, 86–8, 91, 92–8, 209 corporate governance 113–15, 117–18, 126–7 corporate treasury currency 173–8 correspondent-bank model 166–7 corruption problems 3, 51–2, 57, 58–60, 72, 116–17, 131 cost of capital 53, 61–2 credit rating agencies 102–3, 182 credit ratings 53, 69, 98–100, 102–3, 182–3 credit risks 95–8, 191–2 credit spreads 92–100 credit systems 38–41 Creditanstalt bank 25 crises 2, 4–5, 16, 17–19, 21, 22–8, 34–6, 38–9, 44–5, 46–7, 49–53, 58–60, 72–4, 78–9, 127–8, 131, 179–81, 190, 192–4, 198, 203–4, 206 current account 52, 54–7, 140–1, 154–5, 169 custodian arrangement reforms 5–6 cyber-security campaigns 57 debt problems 3, 4–5, 25, 26–7, 50–3, 56–7, 58–60 defaults, bonds 65, 86–7, 91 deflation 25, 76, 123–4 deleveraging needs 56–7, 78, 85–6, 115–16, 124–5, 127–9, 133, 202–6 delistings 115 WEBBINDEX 12/03/2015 16:12:14 Page 218 218 deliverable forwards (DFs) 144–50, 208 demand for a currency 22, 30–5, 42–3, 47, 151–69 demographics 3, 50–3 Deng Xiaoping 2–3 dependency ratio 51–2 deposits 5–6, 10, 13, 55, 64–8, 109, 125–33, 152–69, 175–8, 210–11 derivative-to-spot ratios, statistics 145, 176–7 derivatives 6, 10, 13–14, 43, 65–6, 90, 92–3, 101–3, 106, 121–2, 136–7, 143–50, 167–9, 176–8, 183–90, 192, 194 Deutsche Bank forecasts 208–11 Deutsche Börse Group (DBG) 110–13 deutschmark history 31–2 ‘dim sum’ bonds 11, 88, 92, 153–6, 162–9 direct financing/total social financing, forecasts and statistics 210 discount bonds 106 disintermediation 85–6, 127–8, 132–3 disputes 70–1 disruptive events 2, 4–5, 16, 17–19, 21–6, 34–6, 38–9, 44, 46–7, 49–53, 58–60, 78–9, 179–81, 190, 192–4, 198, 203–4, 206 diversified investor base 90–1, 92–8, 117–18, 124–5, 142, 205–6 domestic consumption-led economic growth needs 2–3, 53–4, 55–7, 60–1, 98, 131–2, 202–3 Draghi, Mario 102 East China Sea islands 59–60 Eastern Europe 67 economic drivers, conditions for becoming a global currency 2–5, 21–2, 29–30, 31–2, 33–5, 45–7, 49–81, 126, 138–43, 202–6 INDEX economic growth 1–5, 7–10, 14, 21–2, 26–7, 29–32, 33–5, 45–7, 49–81, 84–5, 90–1, 93–4, 96, 112, 121–2, 124–6, 130–3, 135, 138–50, 152–3, 202–6, 208, 211 economic recessions 23–5, 26–7, 204 economic slowdown 49–51, 57 economic transitions 54–7 economies of scale 158–9 education 6, 50–1, 60–1 emerging market currencies, statistics 136–50 emerging monetary order 16–19, 27–30, 35–6, 41–4, 46–7, 49–81, 136–50, 202–6 emerging nations, skeptical perceptions 2, 18–19, 44, 72–3, 203–4 energy sector problems environmental issues, pollution problems 3, 50, 51–2, 56–7, 61–2 equities 5–6, 8–9, 85, 92–3, 109–25, 133, 164, 183 Ericsson 174–5 ETF-based equity options 122, 183 EUR 7–8, 11, 12, 15, 16–17, 26, 28–9, 41–3, 73, 77–8, 94–5, 136–50, 152–67, 180–1, 190, 192–4, 198, 201 eurodollars 26–8, 37–8, 41 Euronext 110–13 Europe 7–8, 11, 12, 15, 16–17, 26, 28–9, 41–3, 45, 47, 56–7, 67, 73, 93–5, 102, 136–50, 151, 152–67, 180–1, 187–90, 196–8, 201, 203–4 European Central Bank (ECB) 68–9, 73, 74–5, 102, 180–1, 187–90 European sovereign debt crisis in 2008 73–4 European Stability Mechanism (ESM) 94–5 WEBBINDEX 12/03/2015 16:12:14 Page 219 Index euroyen 63 exchange rates 4, 6, 11, 15, 34–5, 49, 55–7, 58–9, 61–2, 65–8, 73–81, 96–8, 135, 140–50, 175–8, 195–6, 211 Exchange Stabilization Fund 43–4, 72 exchange-rate risk 11, 34–5, 45–6, 53 ‘experimental laboratories’ 151, 169 Export–Import Bank of China (China Exim) 106, 132–3, 160–1 export-led economic growth 2–4, 30, 45, 50–3, 55–6, 60–1, 202–3 exports 2–4, 30, 31–2, 35, 45, 50–3, 55–6, 60–1, 155, 164–5, 178, 194–8, 202–4 Fannie Mae 104 ‘fast enough’ economic growth 51–4, 55–7 Federal Reserve Act 1913 24, 29, 36 Federal Reserve central bank 2, 16, 18, 22, 24–9, 36, 42–3, 68–9, 72–3, 180–1, 190, 194–5, 205 fiat system 39–40 financial reforms 2, 3–6, 61–81 financial squeeze problems 3–4 financial statistics 2–3, 207–11 Finland 182–3 fiscal deficits 98–103 fiscal policies 58–60, 73–4, 94–5, 98–103 Five Year Plan (2016–2020) 61 fixed exchange rates 67, 140–2, 195–6 flexibility needs 28–9, 61–81, 135, 141–2 floating-rate bonds 106 food safety problems Ford Motors 178 forecasts 2–3, 21–2, 28–30, 49, 53–4, 55–7, 85–6, 90–107, 207–11 219 foreign direct investment (FDI), statistics 52, 57, 64, 69–70, 128, 154–5, 166–9, 171–8 foreign holdings of equities 8–9, 37–8, 64, 66–8, 90–1, 114–25 foreign holdings of government bonds 102–3 forwards 144–50, 167–9, 176–8, 208 Fourth Plenum in 2014 70–1 fragmentation problems, bonds 7–8, 58–60, 83–4, 88–90, 94–5, 101–3, 107 France 12, 17, 41–2, 44, 84–5, 93–8, 158–67, 173–4, 182–3 Frankel, Jeffrey 29, 31, 46 Frankfurt 12, 17, 41–2, 113, 117, 159–67 Freddie Mac 104 free-float market cap 111–25 free-floating exchange rates 11, 15, 58–9, 61–2, 65–8, 135, 141–2, 195–6, 211 free-trade zone reforms 5–6, 14, 132–3, 173–8 Friedman, Milton 27 FTSE 112–15, 120–1, 124–5 Fujian 66 fund managers 11, 13–14, 70, 120, 157–8 Fung Global Institute 196 futures 13, 101–2, 121–2, 144–50, 156–69 FX derivatives 13–14, 136–7, 143–50, 167–9, 176–8, 183–90, 194 FX options 208 FX RMB daily transactions statistics 12, 135–50, 152–69, 208 FX RMB transactions statistics 12, 135–50, 152–69, 171–8, 208 FX turnover 11–12, 67, 135–50, 162–9 FX-reserve build-up 99–103 WEBBINDEX 12/03/2015 16:12:14 Page 220 220 G4 currencies 76–7 GBP 12, 15, 23–4, 25, 28–30, 31–2, 34, 36, 46, 77, 135, 137–50, 153–67, 179–82, 190, 192–3 GDP 2–4, 7–9, 14, 49–57, 84–5, 90–1, 93–4, 96, 112, 121–2, 124–5, 130, 131, 133, 135, 139–50, 152–3, 174–5, 182–3, 192–3, 208, 211 General Electric 43, 175 General Motors 175 geographic locations of RMB trading 145–50 Germany 12, 17, 24, 25, 31–2, 41–2, 84–5, 93–4, 110–13, 117, 153–67, 175, 180–1, 203 global currencies 2–10, 11–16, 17–19, 21–5, 28–9, 30–5, 39–41, 44–7, 49–81, 83–107, 109–25, 133, 135–50, 151–69, 181, 195–8, 201–6 definitions 39–40, 62–3, 135–6, 151–2, 195–6 statistics 136–50, 152–69 global financial crisis from 2007 (GFC) 2, 17–19, 21, 23–4, 26–8, 34–6, 38, 44–5, 46–7, 51–3, 58, 60, 68, 72–4, 76, 127–8, 131, 180–1, 190, 192–3, 194, 204–5 causes 204–5 global financial systems 1–19, 21–47, 125–33 global RMB networks 12–14, 41–4, 126, 136–7, 150, 151–69, 191–8 global trade settlements 5–6, 11–14, 17, 21–2, 24–5, 29–30, 34–5, 41–3, 135–50, 151–69, 171–8, 190–8, 201–6, 208 glossary 213–14 gold 13, 24, 25–6, 30, 39–40, 46, 196–7 gold standard 24, 25–6, 30, 39–40, 46 Goldman Sachs 121 INDEX governance reforms 3, 6–7, 15, 33–4, 68–81, 206 government bonds 5, 7–10, 24–5, 53, 68–9, 83–108, 153–69, 180–1, 182–98, 202–6, 209 government-backed debt securities 87–8, 103–7 government-linked bonds 87–8, 103–7 the Great Depression 23–5, 38, 46 Greece 94–8 Growth Enterprise Index 123 Guangdong 66 hedging 10, 12–13, 35, 64–5, 72, 92–3, 103, 113–15, 135–8, 140–1, 144–50, 154–5, 176–8 hierarchy of money 29, 38–41 historical lessons for the RMB 1–2, 21–47, 62–4 HKD 37–8, 44, 111–13, 138–50, 153–67 Hong Kong Exchange and Clearing Limited (HKEx) 13, 110–13 Hong Kong (HK) 5–6, 8–9, 11–12, 14, 37–8, 42, 44–5, 62–5, 69–72, 85, 110–13, 114–25, 135, 138–50, 151–69, 173–8, 184–90, 191–8, 205, 210 dominance 147–8, 151–4, 155–69 Hong Kong Monetary Authority (HKMA) 149–50, 154, 155–6, 163–4, 184–90 Hopewell Highway Infrastructure 13 housing bubbles, problems 3, 18, 32–3, 52–3, 56–7, 58–60, 63–4, 204–5 HSBC 173–4, 208–11 Hungary 187 hybrid reserve currencies, IMF SDRs 15, 17, 38–9, 45–6, 74–7, 93–4, 113–15, 124, 144–5, 181–3, 195–8, 201–2 hyperinflation 32 WEBBINDEX 12/03/2015 16:12:14 Page 221 Index ICBC 178 Iceland 184–90 IKEA 175 immaturity flaws, stock markets 9, 109–18, 133 implied volatilities 142 imports 13, 35, 155, 164–5, 175–8 incrementalism approach to capital account liberalization 62–8 independence shortfalls of central banks 74–5, 79 India 6, 53–4, 62–3, 67, 77, 85, 103, 112, 129, 138–50, 161, 203–4, 205–6 Indonesia 16, 18, 68, 71, 72, 77, 184–90, 204–6 Industrial and Commercial Bank of China 117, 127 industrial overcapacity 3, 53–4, 56–7 inertia 23, 28–9, 35–6 inflation 6, 23, 25–6, 27–8, 32, 34, 46, 49, 54–7, 73–8, 123–4, 204 infrastructure projects 6, 15, 17, 18, 42, 43–4, 132–3, 171–8 innovation-led economic growth needs 3, 56–7, 60–1, 106, 160–1, 202–6 insider trading 115, 123–4 institutional investors 8–9, 37–8, 64, 66–8, 70–1, 90–107, 120–5, 157–69, 190–8 institutions 2–7, 8, 11, 14–15, 18–19, 22–3, 28–36, 37–8, 42–3, 46–7, 49–67, 68–81, 88–90, 107, 169, 196–8, 202–6, 207–11 insurance 4, 9, 14, 64–5, 70–1, 88, 164, 197–8 interest income, taxes 106 interest rate derivatives 13–14, 101–3, 156–69 interest rate swaps 101–3, 156–69 interest rates 3–5, 11, 12–13, 18, 24–30, 32, 34–5, 61–2, 63–5, 221 73, 90–1, 99–103, 127–8, 131–3, 176–8, 194–8, 205–6 International Monetary Fund (IMF) 15, 17, 18, 43–4, 45–6, 54, 80, 139, 142, 179–81, 195–6, 203–5 internationalization concepts 1–19, 21–47, 49–81, 83–107, 109–25, 133, 138–43, 151–69, 181, 195–8, 201–6 investment banks 6, 15, 17, 18, 42, 43–4, 121–2 investment schemes, cross-border RMB flows 166–9 investment-led economic growth 2–3, 53–7, 60–2, 132–3, 166–7, 183, 202–3 investment-tranche assets 192–4, 196–7 investor protection problems 113–15, 117–18, 124 investors 11, 13–14, 47, 55–7, 64–8, 69–70, 79–81, 83–107, 109–25, 133, 157–69, 183, 190–8 IPOs 111–25 Iran 17, 32, 44 Ireland 94–8 iron ore 13 Islamic bonds (sukuk) 190 issuers, bonds 86–107 Italy 84–5, 93–8 Japan 12, 14–16, 18, 24, 25, 31–3, 35, 37–8, 42, 44, 46, 59, 63–4, 73, 75, 84–6, 93–8, 101, 102–3, 107, 110–13, 120–1, 125, 128–30, 136–50, 152–67, 175, 179–82, 183, 190, 192–4, 201, 203–4, 208–11 Japan Exchange Group (JPX) 110–13 joint ventures 121–2 WEBBINDEX 12/03/2015 16:12:14 Page 222 222 JPY 12, 15, 32–3, 35, 37, 46, 63, 77, 102, 128–30, 135, 136–50, 152–3, 179–81, 190, 192–3, 201, 208–9 judicial/governance reforms 3, 6–7, 15, 33–4, 68–9, 70–81, 110, 113–15, 124–5 junk bond credit ratings 53 INDEX Kazakhstan 185 Keynesian economics 24 Kindleberger, Charles 196 Korea 76–7, 85, 103, 138–50, 158–67, 186–90, 196–7 Kuala Lumpur 159, 164 local government debt problems 3, 8, 50–3, 56–7, 58–60, 65–6, 85–6, 118 local-government financing vehicles (LGFVs) 85–7, 88–91, 118, 127–8 London 12, 13, 17, 30, 37–8, 41–2, 43, 46–7, 72, 110–15, 117, 120–1, 124–5, 143–4, 145–6, 159–67, 190 dominance 145–8 London Metal Exchange (LME) 13 London Stock Exchange (LSE) 110–13, 117 Luxembourg 158–67 land allocation problems 3–4 Latin America 12, 30, 53–4, 136–50, 151, 161–7 leadership needs 202–6 legal reforms 3, 6–7, 15, 33–4, 68–9, 70–81, 90–1, 110, 124–5 lender of last resort roles, central banks 41 Lepu Medical 123 letters of credit (LCs) 175–8 liberalization reforms, China 3–6, 8–9, 14, 45–7, 49–81, 92–8, 131, 149–50, 152, 168–9, 197–8 lifetime employment guarantees 50 Lion 175 liquidity 13–14, 15–16, 23, 24–9, 36–41, 43–4, 62–3, 72–3, 88– 107, 124, 136–50, 154–69, 192–8 determinants 138–43, 192–4 liquidity-tranche assets 192–4, 196–7 listings 8–9, 71–2, 109–25, 133 loans 3–4, 10, 13–14, 24–9, 50–1, 55, 56–7, 78–81, 85–6, 91, 115–16, 122–33, 154–5, 160–9, 175–8, 210–11 Macau 158–9 Malaysia 85, 103, 125, 142, 159–67, 184–90 ‘managed capital account convertibility’ 67 manufacturing 2–3, 13, 50–3, 56–7, 65–6, 203–4 margin finance 69–70, 78–9, 122–3 market segment potential, FX turnover 143–50 market-based economic reforms 3–4, 10, 57, 60–2, 110, 124–5, 197–8 marketization 50–1, 61–2, 178 Matsunaga, Hikaru 32 Mearns, Hughes 26 medical insurance merchandised trade, forecasts and statistics 154–5, 208 meritocratic personnel development metals 13–14 Mexican crisis of 1994 16, 44, 72, 204 Mexico 16, 44, 72, 77, 136–50, 203–4 micro-loans 130–3 mid-2015 collapse on the stock markets 4, 9, 15, 34–5, 50, 53, WEBBINDEX 12/03/2015 16:12:14 Page 223 Index 56–7, 58–9, 70, 78, 109–12, 122–5, 152–3 middle class consumers 131–2 the Middle East 2, 12, 56, 151, 163–4 migration gains, workforce 51 military conflicts 23, 24–5, 28–30, 32, 33–5, 36, 46, 58–60 Ministry of Finance (MoF) 8, 68–9, 86–7, 88–107, 202–3 MNCs 166–7, 173–8 monetary policies 23–4, 37–8, 54–7, 67–8, 72–81, 180–1, 204–5 money, definitions 39 money multiplier concepts 41 money supply 23–4, 25, 38–9, 63–4 money-market instruments 167–9 ‘moneyness’ of credit 41 Mongars, Philippe 191 Mongolia 185–6, 188 moral hazard 7–8, 83, 86–107 Morgan Stanley 121, 123 mortgage-backed securities (MBSs) 104–7 MSCI Emerging Market Index 113–15, 120–1, 124 MSCI indices 10, 112–15, 120–1, 124 MTNs 209 municipal bonds 7, 83, 85–107 mutual funds 70 MXN 136–50 Nasdaq 110–13, 118 National Development Reform Commission (NDRC) 8, 68–9, 88–90, 116, 202–3 National Equities Exchange and Quotations 111–13 National Monetary Commission 24, 29–30 National People’s Congress 117 National Social Security Fund 120 223 ‘negative list’ investment system 61–2 Netherlands 83–4, 93–8, 103, 182–3 networks see global RMB networks New Development Bank (NDB) 6, 18, 43–4, 203–4, 205–6 new era, economic growth 50–1, 54–7 New York 24, 29–30, 36, 46, 72, 110–13, 117, 147 New York Stock Exchange (NYSE) 110–13, 117 New Zealand 2, 137–50, 185–90 nickel 13 Nigeria 193 Nixon, President Richard 26 nominal effective exchange rate (NEER) 76–8 non-deliverable forwards (NDFs) 148, 167–9 Norway 192 NZD 2, 137–50 OECD 2, 7, 54, 66, 78, 181–2 offshore currency concepts 36–41, 145–50, 151–69, 173–8, 190–8 offshore rates 4, 12–13, 24–5, 209–11 offshore RMB bonds 12–13, 41–2, 44–5, 92–3, 153–69, 183–4, 190–8, 209 offshore RMB (CNH) 4, 10, 12–14, 22–3, 27, 36–41, 44–5, 55–7, 62–8, 78–9, 114–33, 135, 151–69, 173–8, 181–2, 190–8, 209–11 offshore RMB deposits 10, 12–14, 27, 37–41, 44–5, 125–33, 152–69, 175–8, 190–8, 210–11 oil prices 56, 58 ‘One Belt, One Road’ strategy 132–3, 203 one-child policy 51–2 WEBBINDEX 12/03/2015 16:12:14 Page 224 224 onshore bond market 7–8, 66–8, 88–107, 142, 166, 190–8 onshore foreign bank total deposits 10, 109, 125–33, 166, 190–8, 211 onshore foreign bank total loans 10, 115–16, 129–33, 166, 211 onshore rates 4, 142, 145–50, 211 openness assessment, banks 128–30 options 122, 144–50, 156–69 OTC FX turnover, statistics 137–8, 141 outward foreign investment 55–7, 66, 69–70, 114–25, 166–9, 171–8 overcapacity problems 3, 53–4, 56–7 overvaluations 69–70, 118–19, 122–3 P/E ratios 118–19 Pakistan 186 Paris 12, 17, 41–2, 147, 159–67 Parker, Zafar 197 PBOC bills 86–98 pegged currencies 62, 67 pensions 9, 70, 88, 123 People’s Bank of China (PBOC) 4, 6–9, 13, 16, 18, 22, 49–81, 140–1, 155, 157, 160–1, 166, 168, 174, 175–8, 183–98, 202–6, 211 goals 6, 8, 49, 68–9, 72–80, 183–90 historical background 74–8 independence shortfalls 74–5, 79 interventions 4, 6, 8, 9, 16, 22, 73–81, 140–1, 183–90 the record 74–81 reform needs 79–81 per-capita income statistics 54–5, 60–1 perceptions by other countries 15, 16–18, 41–4 INDEX ‘perfect storm’ of four converging trends 1–2 Peru 164 petroleum 13 Philippines 85, 125, 136–7 PHP 136–7 platinum 13 policy banks 6–7, 16, 87–8, 90–1, 98, 105–7, 160–9, 193 politics 8–10, 33–5, 41–3, 46–7, 50– 1, 58–60, 61–81, 115–17, 202–6 pollution problems 3, 50, 51–2, 56–7, 61–2 Portugal 94–8 positioning 166–7 prices of financial assets 34–5, 47, 92–8, 116–17 private money, historical background 29–30 private-sector firms 3–4, 9, 50–3, 56–7, 118, 130–3, 202–3 privatizations 115–16 product markets 11–14 productivity issues 3, 50–2, 140 profits 10–11, 18, 31–2, 41–2, 70, 101–3, 126–7, 130–3, 171–8, 182–3, 201–2, 203–4 property rights 33–4, 60–1, 65–6, 71–2 public money, historical background 29–30 public-debt consolidation schemes 98–103, 107 purchasing power parity (PPP) 30, 35–6, 57, 131–2 Qatar 159, 188 QDFII 166–7 QDII 64–5, 66, 114–25 QDII2 64–5, 66–8 Qianhai Equity Trading Center 64 qualified foreign institutional investors (QFIIs) 8–9, 37–8, 64, WEBBINDEX 12/03/2015 16:12:14 Page 225 Index 66–8, 90–1, 114–25, 157–69, 191 quantitative easing (QE) 72–3, 95–6, 194–5 rankings 84–107, 136–44, 150, 152–3 ratings, bonds 69, 84–107, 182–3 real effective exchange rate (REER) 75–8 real-time gross-settlement (RTGS) 156–7 ‘reform bull market’ 9–10, 123–4 reforms 1–6, 7–11, 19, 22, 28–9, 43–4, 45–7, 49–81, 109–33, 171–8, 197–8, 201–6 registration-based listings on stock exchanges 117–18, 124–5 regulations 3–9, 37–8, 41–2, 60–1, 78–81, 83–107, 110, 116–17, 171–8, 202–6 regulatory arbitrage 177–8 renminbi (RMB) see individual topics research and development 60–1 Reserve Bank of Australia (RBA) 182, 183, 186–90 reserve requirement ratios (RRRs) 79–80, 99–103, 128 reserves 13, 14–16, 19, 21–2, 25–6, 27–8, 32, 37–8, 41–3, 92–3, 99–100, 136–50, 154–5, 179– 98, 201–6 Reserves Advisory and Management Program (RAMP) 197 resistance from self-interest groups 58–60, 61–2, 66–7, 202–3 resources, allocation of scarce resources 3–4, 9, 40–1, 51–2, 61–81, 124–5, 133, 202–6 retail investors 116–25, 164 returns, risk/return dynamics 182–3, 192–3 225 rise and fall of currencies 1–2, 21–47 rising trends of the RMB 1–2, 11–12, 14, 16–19, 21–2, 27–30, 33–4, 41–3, 45–7, 49–50, 55–7, 135–50, 179–81, 183–90, 194–8, 201–6 risk premiums 98–103 risk/return dynamics 182–3, 192–3 risks in international monetary system transitions 23–6, 33–5, 45–7, 80–1, 171–8, 182–3, 198, 204–5 Royal Bank of Scotland 131 RQDII 64–5, 66–8 RQFII quotas 37–8, 64–5, 66, 114–25, 157–69, 190 Russia 17, 24, 38, 44, 80, 139, 148, 161, 163–4, 185–90, 204 Salmon, Chris 190 same-day trading prohibitions 121–2 Samsung 11, 171–2 samurai bond market 209 sanctions on other countries, US 17, 19, 44, 59–60 Santayana, George 22 savings 55, 131, 177–8 Scottish-independence movement 96 Securities Law revisions 117–18 segmentation, bonds 92–3 Seoul 12, 147, 159–67 service-led economic growth needs 3, 55–7, 60–1, 131–2, 202–6 settlement arrangement reforms 5–6, 11, 17, 171–8, 208 settlement netting service, Samsung 171–2 shadow banks, problems 3, 53, 58–60, 65, 85–6, 88–90, 127–8 Shanghai 5–6, 8–9, 11, 12–14, 36, 37–8, 64–5, 66–71, 110–25, 147–50, 156–69, 173–8, 190, 191–8 WEBBINDEX 12/03/2015 16:12:14 Page 226 226 Shanghai Free Trade Zone (SFTZ) 14, 132–3, 173–8, 195–6 Shanghai–Hong Kong Stock Connect 5, 8–9, 11, 12–13, 14, 37–8, 64–5, 66–9, 114–25, 157–69, 195–6 shanty-town reconstruction projects 90–1 Shenzhen Stock Exchange (SZSE) 5–6, 8–9, 69, 110–25 Shenzhen–Hong Kong Stock Connect 8–9, 11, 14, 64–5, 66–9, 114–25 short sellers 10, 121–2, 123–5 Silk Road Fund 6, 13, 18, 43–4, 78, 132–3, 161, 203–4, 205–6 silver, China 24 Singapore 11, 12, 85, 109, 117, 125, 138–50, 153–67, 175, 176–8, 184–90 Sino Forest 71 small and medium-sized enterprises (SMEs) 3–4, 9, 50–3, 56–7, 86, 116–19, 130–3, 202–3 SME Board 116–19 social and environmental costs 50–3, 56–7, 61–2, 90–1 social-security resources 51–3 Song Ma 123 South Africa 139, 189, 193, 196–8 South African Reserve Bank (SARB) 189, 193, 196–8 South Asia, OECD kinds of developments South China Sea islands 59–60 sovereign funds 7–8, 93–4, 182–3, 194 Spain 84–5, 93–8 Special Data Dissemination Standard (SDDS), IMF 80 special drawing rights (SDRs) 15, 17, 38–9, 45, 74–7, 93–4, 113–15, INDEX 124, 144–5, 181–3, 195–8, 201–2 specialized offshore hubs 162–9 speculators 103, 120–1, 140–1 Sri Lanka 188 Stability and Growth Pact 94 stagflation of the 1970s 23, 25–6, 46 Standard & Poor’s 53 Standard Chartered Bank 130, 131, 208–11 startups 118–19 State Administration of Foreign Exchange (SAFE) 172–3, 174–8 state enterprise-led economic growth 2–3, 60–1 state-owned enterprises (SOEs) 3–4, 9, 50–3, 56–7, 58–62, 65, 69, 86–7, 91, 115–16, 117–18, 123–5 reform needs 117–18, 124–5 statistics 2–3, 7–9, 11–14, 18–19, 45–6, 49–81, 84–107, 109–33, 136–50, 207–11 steel 13 stock brokers 121–5 stock markets 3–4, 5–6, 8–10, 11–15, 34–5, 50, 53, 56–7, 63, 66–8, 69–81, 83–5, 109–25, 133, 136, 138–43, 157–69, 195–8, 202–3 mid-2015 collapse 4, 9, 15, 34–5, 50, 53, 56–7, 58–9, 70, 78, 109–12, 122–5, 152–3 stock-index futures 121–2 STRIPS 106 subsidiaries 11, 14, 37–8, 171–8 supply factors, institutions 30–5, 47, 57 support needs, institutions 22, 30–5 suppressed exchange rates 4, 11, 67, 140–2 Suriname 189 ‘surprises’, economic growth 3, 58–60 WEBBINDEX 12/03/2015 16:12:14 Page 227 Index swaps 6, 13–19, 22, 27–8, 37–8, 43, 64–5, 72, 76, 78–9, 88–91, 99–103, 144–50, 156–69, 176–8, 183–90, 194, 198, 208 SWIFT 12, 17, 152–3, 156–8, 161–4, 191 Swiss National Bank (SNB) 182, 188–90 Switzerland 16, 137–50, 153–67, 181–2, 188–90 Sydney 12, 159–67 Taipei 12, 143–7, 156–7, 158–67 Taiwan 12, 143–7, 156–7, 158–67 taxation reforms 5–6, 58–60, 92–3 taxes 5–6, 58–60, 92–3, 101–3, 106 technology 60–1, 131–2 Thailand 15, 16, 18, 44, 68, 72, 85, 103, 125, 159–67, 186–90, 203–5 Third Plenum in 2013 61–2 Tianjin 66 Toronto 12, 43, 110–13, 117, 147, 159–67 Toronto Stock Exchange (TMX) 110–13, 117 tourism 13–14 trade acceptables, purchasing practices 24, 29–30, 36 trade settlements 5–6, 11–14, 17, 21–2, 24–5, 29–30, 34–5, 41–3, 64–5, 135–50, 151–69, 171–8, 190–8, 201–6, 208 trade surpluses Triffin, Robert 26 ‘Triple-A Club’ 182–3 trust considerations 5, 16, 33–6, 46–7, 72–81, 155–6, 193, 202–3 Tunisia 205 Turkey 77, 80, 139, 186 UAE 186 UBS 121 227 UK 7–8, 12–13, 15–17, 23–5, 28–32, 34, 37–8, 41–3, 46–7, 72, 75, 84–5, 88, 93–4, 96–8, 110–15, 117, 120–1, 124–5, 137–50, 153–67, 179–82, 187–90, 192–3, 194–5, 196–7 Ukraine 187 under-representation problems, stock markets 110–15 undervaluations 140 unemployment levels 26, 50–1 United Nations 51–2 US 1–2, 7–8, 11–19, 21–32, 34–7, 41–7, 54, 57, 59–60, 68, 72–3, 84–5, 92–8, 101, 104–5, 107, 110–13, 117, 120–1, 124–5, 136–51, 153–67, 172–8, 179–98, 203–6, 208 Bretton Woods institutions 1–2, 17–19, 25–6, 32–3, 43–4, 195–6, 203–5 criticisms 15, 16, 17–19, 22, 28, 32, 34, 36, 41–6, 59–60, 68, 72–3, 196–8, 203–6 opposition/attitudes to the RMB 15–19, 28–9, 41–4, 72–3, 196–8 sanctions on other countries 17, 19, 44, 59–60 US Congress 16, 19, 43–4, 72–3, 74–5, 204–5 US Treasury 7–8, 16, 43–4, 72, 180–1 USD 11–12, 14–19, 21–7, 28, 29–32, 34, 35, 37, 43–4, 55–7, 59–60, 62–3, 67, 72–3, 76–8, 111–13, 136–50, 152–67, 172–8, 179–98, 203–6, 208 Uzbekistan 185 valuations 69–70, 118–19, 122–3, 140 value chains 35, 56–7, 60–1 value-added manufacturing 56–7 WEBBINDEX 12/03/2015 16:12:14 Page 228 228 Venezuela 164–5 Victoria Classics 178 Vietnam 158 virtuous circle of reforms 4–5, 11 Volcker, Paul 26 Volkswagen 175 workforce 3–4, 6, 26, 50–3, 55–7, 60–81 World Bank 17, 18, 43–4, 51–2, 54, 57, 160–1, 196–7, 203–5 World Trade Organization (WTO) 39, 45–6, 50–1, 126–7, 129 World War I 24–5, 29–30, 33–5, 36, 46 INDEX World War II 23, 25, 28–9, 32, 204, 206 Xi Jinping 51 Xu Liansheng 174 Yellen, Janet 74–5 yield curves 88–107, 167–9, 180–1, 182–3 Young, Allyn 39 zero-coupon bonds 106 Zhou Xiaochaun 67, 74 Zhu Rongji 50–1 WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley's ebook EULA ... legal system A global currency entails huge numbers of transactions, many quite large, and, inevitably, a large number of disputes International and local participants are 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Table 9.1 Reserve currencies (as a share of total allocated reserves, %) 180 Table 9.2 China’s bilateral local currency swap agreements 184 Table A. 1 Forecast China RMB financial statistics and... RMB internationalization It also looks at what the dawning of the RMB era potentially means for the global financial system, international business and for supporting financial services and products