国际金融论文

International Finance Final Evaluation Essay

----How has China managed to promote its stature in the

international finance market

Name:Zhao Qian

Student ID:1230130727

Class :International business administration

〖Abstract〗 There is no doubt that it is the telling moment for China to become a true global financier and make the renminbi more available outside China.Some economical policies has been carried out by Chinese regulators which are attracting more qualified foreign institutional investors .The value of China’s domestic financial assets is a more than ten times increase in recent twenty years, but its growth has not kept pace with that of GDP. That’s means there still remain some potential risks,for example,credit bubble.Chinese regulators also made some policies in order to help renminbi build the trust in global financial stage.

〖Key words〗 financial markets cross-border loans convertibility

I.Introduction

Since China’s financial markets have been more stable and deeper,as well as the the advanced economies face stagnancy, the role of China has been more and more influential in the global financial rebalancing toward emerging markets. It is the telling moment for China to become a true global financier and make the renminbi more available outside China. However ,there is no doubt that it will take some time to make renminbi a major international currency and build the trust in global financial stage. In order to achieve the aspirations , continuing reform in China is very necessary by coupled with its vast domestic savings ,outsize role in world trade and so on .

II. Growth and growing pains in China’s market

i. Although the value of China’s domestic financial assets has reached $17.4trillion in 2012 which is a more than ten times increase in recent twenty years, it should be mentioned that its growth has not kept pace with that of GDP. That’s means there still remain some potential risks. ii. The speed of growth is too high and it will lead to a threat of credit bubble and a future rise in noperforming loans,especially in overheated areas such as real estate.

iii.In terms of China’s corporate-bond market ,there still has large room for further development. It is because China’s levels of bond-market borrowing are significantly below those of advanced economies. Thus , an alternative source of capital can be provided by enabling banks to increase their lending to households and to small or middle size enterprises.

iv. The fact we can not ignore is that China’s stock market has not rebounded since the financial crisis.

III.Cross-border investment surges

i. For China, FDI ,cross-border loans and deposits has been increased these days . For instance, foreign portfolio investment in equities and bonds are up to 44persent over 2007 level and it is still rising . It means that foreign companies are eager to establish a presence in China.

ii. Some economical policies has been carried out by Chinese regulators which are attracting more qualified foreign institutional investors and giving registered foreign funds more freedom to invest their holdings of offshore renminbi in China’s domestic capital markets.

iii. After the creation of the China Investment Corporation(CIC),the another one impetus for the capital is that China is loosening restrictions on other types of financial outflows and moving to diversify its foreign holdings.

iv.A clear tendency is that Chinese companies are stepping up their role in global finance. The investments are higher than that for companies in advanced economies by both state-owned and private-sector companies.And half of these goes in to emerging markets.

v. Outstanding foreign loans and deposits rapidly increased.For example,since 2009,Chinese loans to Latin America even have exceeded those of the World Bank. After the 2012 Forum on China-Africa Cooperation ,Africa has become an another priority.

vi. There will be a challenge for decision maker because the returns on many of China’s investments at home have been below their cost of equity.In fact ,the returns that will be earned on many of China’s FDI and foreign loans .

IV.The long road to renminbi convertibility

i.We all have faith in that one day renminbi may finally rival the US dollar and the euro for global foreign reserves and become an international currency.

ii.However, achieving this goal requires several basic progresses and will take some time. The very first one is developing deep and liquid domestic capital markets for renminbi-denominated financial assets.In the meanwhile,develop larger bond markets and derivatives markets to hedge currency and other risks.

iii.A great creation is swap lines which help to supply renminbi to15 foreign central banks and lead to a rapid growth on the use of renminbi in China’s trade.

iv.It is believed that one-third of China’s trade will be settled in renminbi by 2015 according to a survey . This conclusion inspires us because we know that to take on a greater global role ,the renminbi must become an international medium of exchange.

v. A true international currency means that any individual or company must be able to convert it into foreign currencies for any reasons and at any banks or foreign exchange dealer. Chinese regulators recently developed a set of rules and outlined short-term and long-term road maps in order to move in this direction.

vi. We know that the goals won’t be achieved overnight only if we follow the correct strategies and policies .For now,the door remain only partially open,so China need to embrace financial globalization and advance reform more fully. However,we believe that China will take on a greater role and become one of the world’s most influential suppliers of capital.

 Bonus question : please further express your opinion about what has been done and

what needs to be improved concerning the Chinese financial system.

In my own opinion and according to some references, there are several viewpoints.

Firstly, the prospect which worthy to be improved as a long -term policy is further loosening of controls on cross-border investment and broadening access to the economy and banking sector.That’s because these moves can further open the door to foreign participation .In this way, there will be more and more qualified foreign institutional investors .

In terms of China’s corporate-bond market ,it should develop in both variety of stock available and the liquidity of the secondary market.

Secondly, although China’s financial markets have become more robust, the most important thing that I concerned about is China’s bubble economy.Because nearly all great bubbles start out as compelling economic growth booms .Obviously, the China bubble is no exception to this pattern, starting out as a boom based on successful economic reforms.I think monetary policy

should focus on keeping inflation low .In addition, housing price and real-estate price booms typically involve a high degree of borrower leverage. The People’s Bank of China should develop a range of measures to assess systemic risks. These measures should include firm-specific measures and system-wide risks, including leverage and foreign exposures.Then it could be easier to provide useful information about unsustainable leverage positions and can provide an early warning about credit bubble.

Otherwise,as for trying to make renminbi a real international currency, I think swap lines are very advisable choice that has been made since swap lines are a step toward making the renminbi more available outside China.Meanwhile,China’s Central bank is busy shoring up renminbi’s global recognition through currency swap lines with Asia and Latin America trading partners.

I did research and found out that the specific role of Currency swap lines is allowing central banks to purchase and repurchase currencies from one to another, which in turn makes it easier for banks in each relevant country to get hold of the underlying currencies. They are sometimes wheeled out in times of crisis to ensure liquidity keeps flowing around the markets.

But now it seems they are not just there for the tough times. For China,the decision makers make it easier to trade the renminbi offshore.

Swap lines policy is helpful to achieve internationalization of the renminbi. However, the renminbi’s role as a reserve currency is also very essential ,and it will be influenced by the following points:

 China’s economic size and its shares of global trade and finance are important.  The renminbi must be easily tradable in global financial markets .

 Renminbi as a reserve currency should generally trade freely at market-determined exchange

rates.

 China must have broad and deep financial markets so that international investors will trust

renminbi and invest in renminbi.

 China must make commitment to low inflation and sustainable levels of public debt to

prevent from credit bubble.