RCIF | Research Center for International Finance
Chinese Academy of Social Sciences
Policy discussion No. 2016.003
Assessing the Potential of RMB Trade Settlement
Xu Qiyuan
In July 2009, China launched a renminbi (RMB) trade settlement pilot scheme. Since then, the acceleration of RMB internationalization has made remarkable progress.
First, there is the development of RMB cross-border settlement. In addition to the pilot program of RMB settlement in trade and direct investment, a series of supporting measures under the financial account have also been implemented, such as RMB Qualified Domestic Institutional Investors, RMB Qualified Foreign Institutional Investors (RQFII) and RMB cross-border loans. From the second quarter of 2009 to the fourth quarter of 2014, the amount of RMB cross-border trade settlement accumulated to ￥16.6 trillion. At the same time, RMB settlements of foreign direct investment (FDI) and overseas direct investment (ODI) exceeded ￥1 trillion. By the end of April 2014, RQFII amounted to ￥215.6 billion. The pilot program of RMB cross-border loans has already launched within the Qianhai area in Shenzhen, the free-trade zone in Shanghai and Tianjin Eco-city.
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The Framework for the Assessment
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The Structure of China’s International Trade
The most prominent features of China's foreign trade structure are huge volumes and a large trade surplus. There are also four other characteristics that cannot be overlooked: foreign-owned enterprise, which contributed 46 percent for both exports and imports in 2014 (these data have fluctuated around 50 percent in the last decade); processing trade, which accounts for 36 percent of total imports and exports; primary commodities, which accounted for 33 percent of total imports in 2014, although most of the primary commodities prices declined at the same time; and China still relies heavily on the demand from EU countries, and the United States, which account for 35 percent of China’s total export .
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An Assessment of Pricing Power of Chinese Enterprises
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Concluding Remarks
There has been both big progress and deep skepticism in RMB internationalization. In order to understand the RMB’s prospects, we try to assess the potential of RMB settlement based on the transaction network and specialization network. As mentioned in the first part of this chapter, an international currency results from a virtuous circle between the efficiency of the transaction network and the degree of specialization.
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