With the exception of the very biggest Chinese banks, China's step-by-step approach to building up an offshore RMB market has seen international institutions take the lead. That made sense when the CNH market was at its infant stage, needing the guidance and support that global parenting could provide.
But now, with plenty of channels established to provide routes for overseas capital to flow into China, and RMB clearing arrangements established in 14 jurisdictions, a different approach is called for. The sensible move would be to take some time to promote RMB internationalisation more effectively at home.
Existing initiatives to provide access to China’s domestic markets — such as the Qualified Foreign Institutional Investors (QFII) programme and its renminbi version, RQFII, alongside the Shanghai-Hong Kong Stock Connect and the Shanghai Free Trade Zone — have given plenty of incentive for overseas institutions to grasp the potential benefits of this trend for them. And in many cases they have looked to seize this early-bird premium.
But recent RMB-related initiatives that the Chinese government has announced — such as the new Silk Road Economic Belt, the 21st-Century Maritime Silk Road and the Renminbi Qualified Domestic Institutional Investors (RQDII) scheme — are encouraging investment and capital to break out of the country. Such moves provide the perfect opportunity to offer more education and incentive to China’s domestic players, especially those middle-sized institutions who have longstanding relationships with Chinese local corporates and investors, to take advantage of the new model of RMB globalisation.
Many bankers tell GlobalRMB that the domestic interest and curiosity has always been there, but that what had been missing so far were concrete opportunities and rewards for domestic institutions to expand their international RMB business.
China's central bank will surely have picked its moment quite consciously to formally acknowledge in a manner already familiar to others something that it has been pushing for years, namely "RMB internationalisation". All public data points to RMB-related activity having reached a new high in 2014, including those schemes that involve more onshore participants. By the end of 2014, cross-border RMB payments and receipts totalled Rmb9.95tr ($1.6tr), up from Rmb5.7tr in 2013; trade-related cross-border RMB settlement was recorded at Rmb6.55tr, showing a 41.5% jump from 2013.
What’s more, China's outbound direct investment (ODI) is expected by many economists and research institutions to surpass incoming foreign direct investment (FDI) for the first time in 2014 (the data has not yet been released). The stage is set for a new direction in the RMB journey, but simply putting schemes in place is not enough. Education and promotion at home is the key.