Future and consequences of the
Chinese capital account liberalisation
Zsolt Kuti (Director of Monetary and Financial Analysis)
National Bank of Hungary
26 March 2015
National Bank of Hungary
Presentation outline
• China on the road of liberalization
• Consequences of Chinese capital
account liberalization
• Hungary’s role in Chinese opening
process
National Bank of Hungary
2
Presentation outline
• China on the road of liberalization
• Consequences of Chinese capital
account liberalization
• Hungary’s role in Chinese opening
process
National Bank of Hungary
3
RMB internationalisation – a global deal is
forming
China’s steps
•
•
•
•
Capital account liberalisation
Interest rate liberalisation
Exchange rate liberalisation
Development of the financial
(deposit guarantee scheme,
standards, etc)
institutional
supervision,
framework
statistical
Global
• RMB investments by central banks (gain from higher returns
and diversification advantages)
• Contribution to the development of RMB money, capital and
FX-markets (issuance of RMB bonds, introduction of RMB to
stock exchanges, settlement system, etc)
• RMB introduction to SDR currencies
National Bank of Hungary
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Past, present and future of reforms
I.
Current account liberalization (from 1980’s-)
•
•
WTO membership (2001)
Renminbi settlement liberalization (Trade settlement Scheme -Pilot program 2009)
II. Capital account liberalization
• inflows
• FDI inflows (process started in 1990)
• QFII (Qualifided foreign Institutional Investor) (2003)
• Interbank bond programme, central banks and foreign settlement banks can invest in
Chinese bondmarket (2010), NBH is negotiating this issue
• RQFII (RMB – Qualified Foreign Investment Institution) – permit certain foreign RMB
investments in Chinese bond and equity market (2011)
• QFII és RQFII quotas increase (2012)
• outflows
• QDII (Qualified Domestic Institutinal Investor) permit conversion to RMB currency and
foreign investment opportunities (2006)
• ODI (Overshore Direct Investment) - domestic institutions can take RMB oversea to
accomplish FDI investments (2011)
III. Exchange rate regime and FX liberalization
•
•
•
Onshore market: Fixed exchange rate regime + liberalized offshore market (CNY, CNH)
Widening of FX trading band (+/- 1% , 2012) (+/-2% , 2014)
Broaden onshore quoted currency group (2012 -)
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China’s capital account is still closed in
international comparision, but it is improving
Investments in QFII, QDII,RQFII programs (bn USD)
Capital Account Openness
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History confirms that international investments
may grow fast after abolishing capital controls
Increase in gross international assets during five years
following capital account liberalization
Magyar Nemzeti Bank
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Source: IMF
Starting point: closed capital account (China)
Endpoint: opened capital account (US)
•Official reserves account for the vast majority of gross
international assets
•Portfolio inflows and outflows may grow the fastest in the future
•FDI inflows may slow down, but FDI outflows may increase
International investment position (as a percentage of the GDP)
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
Foreign reserves
Others
Financial derivatives
Portfolio investments
FDI
Assets
Liabilities
China
National Bank of Hungary
Assets
Liabilities
United States
8
Forrás: IMF IFS
Presentation outline
• China on the road of liberalization
• Consequences of Chinese capital
account liberalization
• Hungary’s role in Chinese opening
process
National Bank of Hungary
9
RQFII investment quotas are expanding in size
and covering more and more countries (bn yuan)
National Bank of Hungary
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„China goes abroad”- more OFDI, stabilising
IFDI
Inward and outward FDI stock (bn USD)
140
120
100
80
60
40
20
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
0
IFDI
National Bank of Hungary
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OFDI
Forrás: UNCTAD, FDI/TNC database
(www.unctad.org/fdistatistics).
The Silk Road Fund – an example of converting
official reserves to outward FDI
• The Fund is jointly sponsored by
• official foreign exchange reserves,
• China Investment Corporation (CIC),
• the Export-Import Bank of China,
• and the China Development Bank”
• Investment horizon: medium- and long-term
• Geographic coverage:
• financing and investment services along the Silk Road
Economic Belt and the 21st Century Maritime Silk Road
• Investments: mainly equity investments
• infrastructure
• resource development
• industrial and financial cooperation
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FX trading and securities services may grow
fastest in the RMB market
National Bank of Hungary
13
Source: SWIFT
Presentation outline
• China on the road of liberalization
• Consequences of Chinese capital
account liberalization
• Hungary’s role in Chinese opening
process
National Bank of Hungary
14
Hungary has a unique position among CEE
countries regarding RMB
Renminbi Initiatives across Europe
City
Frankfurt
London
Luxemburg
Paris
Members from the private sector
Agricultural bank of China,Baker and Mckenzie,Bank of China,China
Construction Bank,Citi,Commerzbank,Deutshe Bank, Deutshe Borse,
DZ Bank,Frankfurt Main Finance,Gize,Helaba, HHSBC,ICBC, IHK,
RMB Initiative KFW,King and Wood,Messer,pwc, Simmons and Simmons, SWIFT,
Germany
group
Volkswagen
Agricultural Bank of China,Australia and New Zealand Banking Group
Limited,Bank of China, Bank of Communications (UK), Barclays, China
Construction Bank,Citi, Deutsche Bank, HSBC, ICBC,JP Morgan, Royal
City of London Bank of Scotland,Standard Chartered
United Kingdom initative
Luxemburg
Center for
International
RMB Business Bank of China, China Construction Bank, Clearstream, Luxembourg
in the
Stock Exchange, ICBC, Luxembourg Bankers' Association (ABBL),
Luxemburg
Eurozone
Luxembourg Fund Association (Alfi)
Paris
Europlace Bank of China, Paris, BPCE Natixis,BNP Paribas, Crédit Agricole, HSBC
Your Hub to France, ICBC (Industrial and Commercial Bank of China), Paris, Société
France
the Eurozone Générale
Budapest
National Bank of Hungary
Country
Hungary
Intitiative
Budapest
Renminbi
Initiative
Hungarian Banking Association, Hungarian Development Bank,
Budapest Stock Exchange, Bank of China Hungary, Audi, Mercedes,
ZTE, Huawei
15
Members from the public
sector
Bundesbank, essisches
Ministerum für Wirtschaft,
Energie, Verkehr und
landesentwicklung,
City of London, HM
Treasury, Bank of England,
Financial Services Authority
Finance Ministry,
Commission de
Surveillance du Secteur
Financier
Banque de France, Trésor
Francais
Central Bank of Hungary,
Ministry of Finance,
Government Debt
Management Agency
Opportunities for Hungary with Budapest
Renminbi Programme
•
Increasing trade financing with RMB,
vulnerability via diversification (swap line)
•
Potential Chinese government bond investors through
RQDII and potential investment outflow to China
through RQFII
•
Potential increase in China-Hungary bilateral FDI flows
•
Potential development of capital markets, clearing and
settlement infrastructure
•
To seize all this opportunities MNB should meet risk
mitigation requirements („Cross the river by feeling the
stones”)
National Bank of Hungary
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decreasing
Co-operation and more work going forward
 Swap line (signed in 2013)
 Central bank
emergency
instruments
in
case
of
 FX portfolio construction (RQFII quota)
 Clearing
and
settlement
infrastructure
development (local Chinese bank assigment)
 Financial stability and supervisory role…
National Bank of Hungary
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Thank you for your attention!