China has been industrious this year in laying the foundations for a Sino-centric financial system. Though the realisation of Beijing’s grand design remains uncertain and far off, the thrust of its strategy is clear. First, it aims to create a renminbi zone to balance the US dollar zone that has dominated the world’s financial system since the end of the second world war. This involves encouraging the use of renminbi as a reserve currency, a unit of settlement for trade and a store of value for investors in securities. Progress on all fronts has been marked. Issuance of offshore renminbi bonds, for instance, rose to a record Rmb451bn in the first nine months of the year, from Rmb376bn in all of 2013, Moody’s, the credit rating agency, said yesterday.
The second plank in Beijing’s plan involves setting up institutions to mirror the multilateral organisations that govern the global development agenda. A decision in July by the Brics group of countries (Brazil, Russia, India, China and South Africa) to establish the New Development Bank and a contingent reserve arrangement creates alternatives to the World Bank and International Monetary Fund. In October, the inauguration of the Asia Infrastructure Investment Bank, with the backing of 20 countries, set up a rival to the Asian Development Bank. Beijing is also moving ahead with a scheme to create the Development Bank of the Shanghai Co-operation Organisation, a six-country Eurasian political, economic and military grouping.
These four institutions will add to the considerable financial firepower of the China Development Bank and the Export-Import Bank of China. The latter has in the space of two years doled out about $670bn in credit – eclipsing all of the loans, guarantees and insurance extended by the US ExIm Bank in the previous eight decades.
