RMB: Correcting imbalances
“Measures especially on the exchange rate and interest rate that are accepted by the global market would help China correct imbalances,” he said.
Orlik, however, said he was not particularly impressed with first quarter growth being disappointing and April seeing a continued slide while May is the start of lackluster secondquarter growth in China
“What has been driving Chinese growth has been real estate and exports and neither are doing well with real estate sector being in an overcapacity situation, hit by sluggish sales … commodity prices are not that good either,” he said.
Consumer demand for things like furniture had been affected by the undervalued yuan in the last decade, but the currency has been stable against the dollar, up by 13 per cent recently and had dealt a blow to Chinese exports, which had contracted as a result, according to Orlik. “The exchange rate is bad news for exports,” he said.
In the last three months, China had stepped on the stimulus pedal to support growth, with lower interest rates and tighter monetary conditions being put in place, and inflation has been low but the cost of credit has been quite high, Orlik said.
“Should China engineer the depreciation of the yuan? There are temptations but China would not succumb to doing it and is opposed to yuan depreciation,” he noted.
China’s Premier Li Keqiang has ruled out currency depreciation, saying it is not in China’s interest.
Janet Ecker, president and CEO of Toronto Financial Services Alliance, who is a former Ontario finance minister, said at the event the new RMB hub is a win-win situation for all, including banks, businesses, industries and the Government.
“We are the second-largest trading partner of China and the hub will facilitate trade and investments,” she said.
Last year, Ontario Premier Kathleen Wynne led a trade mission to China, and attracted $966 million in new investments by Chinese companies, which would create 1,800 jobs across the province.
Caroline Owen, managing director, head of RMB solutions at Standard Chartered Bank, said the world of RMB remains unclear, likening the situation to the wide expanse of the universe of galaxies where everyone knows yuan exists but is distant and murky.
“China wants to see a greater use of its currency on a global scale with numerous reforms to broaden and deepen the its use through the implementation of measures like liquidity management, payments, investments, swap agreements with central banks and using yuan for cross border payments which can help move large swaps of currencies,” she said.
Lots of Chinese business in the mainland are still being funded in US dollars, said Owen as she outlined the benefits of using the renminbi, including improving margins to grow market share.