US tariffs may offer new window for yuan internationalization: Chinese banker

Massive tariffs imposed by the US government, embedded with “America First” mentality, might have closed some doors on China, but they may also have offered new opportunities for accelerating the internationalization of the Chinese yuan, the head of the Export-Import Bank of China (China Exim Bank) said over the weekend.

With China’s current account surplus narrowing and cross-border investment further developing, the conditions for yuan outflows have become much more mature, Hu Xiaolian, the head of State-owned China Exim Bank, told a conference held in Northeast China’s Heilongjiang Province over the weekend. “From external environments, US dollar volatility within the international monetary system is in contraction, which has created bigger room for yuan outflow.”

China is tackling hidden government debts in an orderly manner, a very difficult task that needs time, the banker said. “Although the official fiscal deficit rate is at a reasonable level, it has become a common view that local governments face significant hidden debts,” Hu said, noting that in the medium term, the fiscal policy may face certain pressure because of the hidden debts.

In capital accounts, the future volatility of cross-border capital will increase, and China needs to be prepared for the trend, she noted. “Besides the pressure on capital outflow, pressure will also stem from investments in countries along the routes of the Belt and Road (B&R) initiative and from global capacity cooperation,” she said, noting that market-driven mechanisms should play a decisive role.

The bank’s outstanding loans related to B&R projects rose 37 percent in the first half of 2018. And loans totaling 130 billion yuan ($19 billion), for projects discussed during the Belt and Road Forum in 2017, have all been disbursed in agreements, the bank said.