China
The gradual internationalisation of the RMB
Author: Kathleen Walsh, UTS
China is an economic giant. It is the world’s largest trading nation and is set to be the world’s largest economy as early as next year. Yet China’s financial relations with the rest of the world and the offshore use of the Chinese renminbi (RMB) is limited. While the RMB ranked 5th as an international payments currency in June 2019, its share of global transactions was less than 2 per cent. In contrast, the share of transactions in USD was 40 per cent and the Euro held 34 per cent.
In some respects, it is not surprising that the RMB has such low usage offshore. While China’s current account has been freely traded since 2009, the capital account remains largely closed with flows in and out of China heavily restricted. China has signalled an appetite to liberalise its capital account but the pace and sequencing of reforms remain uncertain.
The key feature of an internationalised currency is that it is widely used by both the private and official sectors outside the currency’s home country. This usually requires the currency to be used as a unit of account for trade invoicing, a medium of exchange for trade settlement and broader financial transactions, and a reliable store of value such as foreign exchange reserves.
Because China has widespread capital controls but an open trade account, it relies heavily on encouraging greater RMB trade invoicing. Substantial increases in the use of RMB for trade settlement will necessitate use for investment and the demand for RMB reserves will follow, albeit slowly.
The establishment of an RMB hub to facilitate RMB transactions requires the appointment of an official settlement bank for offshore RMB transactions, an RMB Qualified Foreign Institutional Investor quota for reinvestment back into China and a swap facility to support the settlement of RMB. The network of offshore hubs provides a framework to facilitate offshore transactions, complementing onshore market reforms and international milestones such as inclusion of the RMB in the International Monetary Fund’s (IMF) international reserve basket, the special drawing rights.
China has publicly acknowledged its plans to internationalise the RMB and significantly increase the offshore use of RMB, but the commitment to reform has slowed considerably over the last few years. If China wanted to push the process it would only need to insist that state-owned enterprises settle their trade in RMB.
China is grappling with a rapidly transforming economy and the internationalisation of the RMB is but one of its many political and economic objectives. China appears to be content to slow the timeline for internationalisation and allow the process to evolve gradually.
Without further policy intervention, there needs to be a clear upside for corporates to incur the cost of using RMB for trade and investment. The advantages may not be clear for countries such as Australia where most of the trade with China is one directional. Australia either sells to or buys from China so the drive to settle in RMB and have it sitting on the balance sheet is very low. Globally, products like iron ore are priced in USD. Considerable structural change is needed for a shift in the trade currency used.
China is not relying solely on the use of RMB in trade to push its internationalisation agenda. In recent years it has implemented programs to attract more inflows while still maintaining strong controls on outflows. A major innovation was the introduction of the bond and stock connect programs allowing international investors access — through Hong Kong — into Shanghai and Shenzhen. The bulk of the flows are northbound into China, reflecting China’s competing priority to restrict outbound flows.
The 2019 launch of the Shanghai London Stock Connect provides a different model where investors trade in depository receipts rather than direct ownership due in part to the significant time gap between the two exchanges.
These programs are a necessary component of the decisions by global index managers like the MSCI and FTSE and bond index managers like JP Morgan to increase China’s weight in their benchmarks. The IMF estimates that benchmark driven portfolio inflows could reach US$450 billion over the next three years. On the surface this seems like a major step in the internationalisation of the RMB and the reform of China’s volatile equity market, but there are significant concerns around investor protection and uncertain regulations. These issues will not be resolved quickly.
It appears that the only strategies…
Business
China’s Golden Rooster Film Festival Kicks Off in Xiamen – Thailand Business News
The 2024 China Golden Rooster and Hundred Flowers Film Festival began in Xiamen on Nov 13, featuring awards, cultural projects worth 31.63 billion yuan, and fostering international film collaborations.
2024 China Golden Rooster and Hundred Flowers Film Festival Opens
The 2024 China Golden Rooster and Hundred Flowers Film Festival commenced in Xiamen, Fujian province, on November 13. This prestigious event showcases the top film awards in China and spans four days, concluding with the China Golden Rooster Awards ceremony on November 16.
The festival features various film exhibitions, including the Golden Rooster Mainland Film Section and the Golden Rooster International Film Section. These showcases aim to highlight the achievements of Chinese-language films and foster global cultural exchanges within the film industry.
On the festival’s opening day, a significant milestone was reached with the signing of 175 cultural and film projects, valued at 31.63 billion yuan ($4.36 billion). Additionally, the International Film and Television Copyright Service Platform was launched, furthering the globalization of Chinese film and television properties.
Source : China’s Golden Rooster film festival opens in Xiamen – Thailand Business News
China
Italy and China New DTA Set to Take Effect in 2025: Important Changes and Implications
Italy ratified an upgraded Double Tax Agreement (DTA) with China, effective in 2025, to reduce tax burdens, prevent evasion, and enhance investment. The DTA introduces modern provisions aligned with international standards, targeting tax avoidance and improving dispute resolution for Italian businesses.
Italy recently ratified the upgraded Double Tax Agreement (DTA), which will finally take effect in 2025. This agreement was signed in 2019 and was designed to reduce tax burdens, prevent tax evasion, and promote Italian investment in China.
On November 5, 2024, Italy’s Chamber of Deputies gave final approval to the ratification of the 2019 Double Tax Agreement (DTA) between Italy and China (hereinafter, referred to as the “new DTA”).
Set to take effect in 2025, the new DTA is aimed at eliminating double taxation on income, preventing tax evasion, and creating a more favorable environment for Italian businesses operating in China.
The ratification bill for the new DTA consists of four articles, with Article 3 detailing the financial provisions. Starting in 2025, the implementation costs of the agreement are estimated at €10.86 million (US$11.49 million) annually. These costs will be covered by a reduction in the special current expenditure fund allocated in the Italian Ministry of Economy’s 2024 budget, partially drawing from the reserve for the Italian Ministry of Foreign Affairs.
During the parliamentary debate, Deputy Foreign Minister Edmondo Cirielli emphasized the new DTA’s strategic importance, noting that the agreement redefines Italy’s economic and financial framework with China. Cirielli highlighted that the DTA not only strengthens relations with the Chinese government but also supports Italian businesses, which face increasing competition as other European countries have already established double taxation agreements with China. This ratification, therefore, is part of a broader series of diplomatic and economic engagements, leading up to a forthcoming visit by the President of the Italian Republic to China, underscoring Italy’s commitment to fostering bilateral relations and supporting its businesses in China’s complex market landscape.
The newly signed DTA between Italy and China, introduces several modernized provisions aligned with international tax frameworks. Replacing the 1986 DTA, the agreement adopts measures from the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project and the OECD Multilateral Instrument (MLI), targeting tax avoidance and improving dispute resolution.
The Principal Purpose Test (PPT) clause, inspired by BEPS, is one of the central updates in the new DTA, working to prevent treaty abuse. This clause allows tax benefits to be denied if one of the primary purposes of a transaction or arrangement was to gain a tax advantage, a move to counter tax evasion through treaty-shopping.
| This article was first published by China Briefing , which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, and India . Readers may write to info@dezshira.com for more support. |
Read the rest of the original article.
Business
China’s New Home Prices Stabilize After 17-Month Decline Following Support Measures
China’s new home prices fell for the 17th month in October, declining 0.5% from September, but slowing, indicating potential market stabilization amid supportive measures. Second-hand home prices showed mixed trends.
Decline in China’s Home Prices Stabilizes
China’s new home prices continued to decline in October for the 17th consecutive month, although the drop showed signs of slowing. Recent support measures from Beijing appear to be inching the market toward stabilization, as evidenced by a lighter decline compared to earlier months.
Monthly and Yearly Comparisons
According to the latest data from the National Bureau of Statistics, new home prices across 70 mainland cities fell by 0.5% from September, marking the smallest decrease in seven months. Year-on-year, prices dropped by 6.2%, slightly worse than the September decline of 6.1%. In tier-1 cities like Beijing and Shanghai, prices decreased by 0.2%, a smaller fall than 0.5% in the previous month.
Second-Hand Home Market Trends
Second-hand home prices in tier-1 cities experienced a 0.4% increase in October, reversing a 13-month downward trend. Conversely, tier-2 cities observed a 0.4% drop in second-hand prices, while tier-3 cities faced a similar 0.5% decline. Overall, recent trends indicate a potential stabilization in China’s property market.
Source : China’s new home prices slow 17-month decline after support measures kick in
- China’s Golden Rooster Film Festival Kicks Off in Xiamen – Thailand Business News
- Italy and China New DTA Set to Take Effect in 2025: Important Changes and Implications
- China’s New Home Prices Stabilize After 17-Month Decline Following Support Measures
- U.S. national debt is its Achilles’ heel, but China sees it as an opportunity
- Business Update: Southern Sun Reports Earnings Growth; China Stimulates Property Market – News24
- Vietnam’s Approach to China: A Balance of Cooperation and Struggle