Shanghai growth to push renminbi

New Zealand businesses interested in the liberalisation of China’s currency should watch developments in Shanghai, says a visiting expert on the Chinese economy.

Professor Xu Mingqi told a conference on the Financial Liberalisation and the renminbi, organised by the New Zealand Contemporary China Research Centre and Victoria University, that freeing up the renminbi was inexplicably intertwined with the growth of Shanghai as a financial power.

Xu is a senior adviser to the Shanghai Academy of Social Sciences and secretary-general of the Shanghai Coordination Centre for

Free Trade Zone Studies.

‘‘Shanghai is the most important financial centre in

China but is aiming to become an international financial centre by 2020.’’

The renminbi, promoted by the Chinese government for international trade in a key decision in July 2009, rose to become the fourth-largest currency in the world by 2015 but fell to sixth last year due to depreciation.

Xu told the conference at the University of Auckland that the renminbi was halfway through a three-stage move towards liberalisation, having completed a preliminary stage of being free to be used in international trade and entered a second stage of aiming to be widely used by third parties in international transactions.

But it had yet to transition into the final stage of being widely used by other governments as official assets.

To become fully liberalised, the renminbi would need to be fully convertible and China would have to open its capital accounts.

Shanghai, which handles around a third of China’s exports through its port, had been established as a Free Trade Zone partly to lead the internationalisation of the renminbi. A series of steps opened the Shanghai market from 2000 to today but it was still not complete, especially with restrictions on the Shanghai stock exchange.

Xu said new renminbi crossborder transactions would be tested first in Shanghai. ‘‘The aim is to promote Shanghai as an Renminbi asset transaction centre.’’

Some 67,000 accounts had been established in the Shanghai free trade zone allowing them to freely move funds between the zone and overseas accounts. Measures were also being established to open up markets like the health insurance market.

Professor Kathy Walsh, a professor of Finance at the University of Technology, Sydney, said there was no doubt in the eyes of Beijing and the world that the renminbi should be an international currency but progress appeared to have slowed.

Her research into Australian and Chinese firms’ use of renminbi in trade invoicing found a range of different benefits.

Australian firms identified benefits in more favourable pricing and the ability to accommodate their Chinese business partners. Chinese companies identified improved trade terms as one benefit. But a number of firms in Australia and China were waiting for the other to ‘‘cross the threshold’’ first.

She believed that it was inevitable renminbi would take a more prominent place on the world stage.

‘‘This is a slow road inevitable one.’’

"This is a slow road but an inevitable one."

Professor Kathy Walsh, professor of Finance at the University of Technology, Sydney

but an