Is The Internationalization Of RMB "Attracting The Wolf Into The Room"?

In February 23rd, People's Bank of China The research group of the survey and Statistics Department published an article entitled "the basic conditions for China to accelerate the opening of capital account".

Sheng Songcheng, director of the survey and Statistics Division of the people's Bank of China, said in an interview that China is now in the strategic opportunity of opening capital account. The risk of China's capital account liberalization is not large. We should not overemphasize the liberalization of interest rates, exchange rate liberalization or the full maturity of RMB internationalization, and then open capital account. In the process of opening up, we can carry out the reform with the largest expected revenue first, and then implement the most risky reform. First, we should push forward incremental reform and gradually push forward the stock reform. Specifically, in 1-3 years, we should relax direct investment control with genuine trading background and encourage enterprises to go out; in 3-5 years, we should relax the commercial credit control with real trade background and boost the internationalization of RMB; in 5-10 years, we should strengthen the construction of financial market, open up the inflow and then open up and outflow, and then cautiously open real estate, stock and bond transactions, and gradually replace the quantitative regulation with price management.

This is a technical report, not a report on the institutional reform of China's money market. From a technical point of view, the motion of RMB internationalization can be considered thoughtful, from short to long term opening steps, taking into account the reality of China's real economy and the need for industrial upgrading, so as to encourage transactions and trade and investment. But from the market point of view, this report lacks the most important foundation, that is, from the price to the basis of pricing of all credit products, without pricing basis, there will be no market that can achieve hedging function. Once the open market participants are realized, they will not be able to fight back.

RMB Internationalization Reform faces three constraints.

The first is interest rate reform. Mr. Sheng Songnian believes that the marketization of interest rate is not a necessary prerequisite for the opening of capital account. China's basic monetary system is flawed. After the decline of the export-oriented economy, no new monetary system has been found in line with China's actual conditions. No one knows how China's basic currency will be issued. Whether it is foreign exchange or tax credit, or the US bond credit? Interest rate can not be marketed. It encourages large scale enterprises to abuse funds, and all credit products can not be priced accurately. The junk debt in the corporate bond market has become a big news.

In the context of the successful international rupee of India, we should strictly control risks in the process of Rupee internationalization. We should focus on attracting foreign capital inflow due to insufficient funds and changing the debt structure of long and short term debt that does not match risks. At the same time, the use of foreign capital has become an opportunity for shareholders and foreign direct investment of India enterprises, and has cultivated a number of large and highly efficient and controllable enterprises, such as software giant TCS and steel giant Mittal.

It can not be ignored that since the beginning of 1993, the rupee internationalization process has been accompanied by the process of interest rate liberalization. After the economic crisis in 1991, the restrictions on loan interest rates were gradually lifted. Since then, interest rates on treasury bonds have gradually been determined by the market. By the end of October 1997, the large-scale marketization of interest rates was basically over. Only a few interest rates remained under control. Loans included small loans under 200 thousand rupees and interest rates on rupee export credit. Deposits were mainly savings deposit interest rates. When the deposit interest rate control is lifted, it shows that India's interest rate marketization has finally been successful, and banks are no longer the vampire of the public wealth. In July 2010, the lending rate was fully marketization, and in October 2011, the last interest rate for savings deposits was finally released. The pace of interest rate liberalization in India is not fast enough to strictly control risks, but it is very firm.

The two is to cultivate high-quality enterprises and investors. The financial crisis has already and is causing a huge impact on Chinese entities. China is certainly unable to hook the RMB exchange rate with the US dollar to gain export competitive advantage, but what is fatal is that, apart from a few enterprises, a large number of enterprises are too bad to fight. In the process of RMB internationalization, China needs a large number of companies that can fight and fight effectively on the international stage. They must be like high level judo players, rather than Vintage vases. This is the most solid foundation for RMB internationalization.

Low investment efficiency exists not only in China, but also in foreign investment. The China Times reported on July 2011 that according to the SASAC statistics, as of the end of 2010, there were over 1.5 overseas enterprises invested by Chinese enterprises, and the stock of non financial foreign direct investment was US $258 billion 800 million, and the total assets of overseas enterprises exceeded US $1 trillion, of which state-owned enterprises accounted for half of the total. By the end of 2009, the overseas assets of the central enterprises had exceeded 4 trillion yuan, and the profits accounted for 37.7% of the total profits of the central enterprises. According to a survey conducted by the Ministry of Commerce in 2007, 65% of overseas investment is losing money, and how much of the loss of overseas assets of 1 trillion dollars can not be underestimated. This hidden danger was confirmed by China Railway Construction and Sinosteel. In June 2010, China Iron and Steel Group suspended the Weld Range iron ore project in Australia, and there was no statistics on specific losses. At the end of 2009, Sinochem invested 3 US dollars in overseas oil and gas projects. According to a report released by China University of Petroleum in 2010, according to the twenty-first Century economic report, the loss of overseas projects by the three major oil companies is even more than 2/3 due to factors such as management system and international investment environment.

Opening up overseas acquisitions of private capital has made a big step forward on the right road. The key point of technology acquisition from Geely to Sany is that the relevant government departments can not repeat the same mistakes and provide full endorsement for these enterprises' funds, so that these enterprises will become the same dignitaries as the central enterprises.

Finally, the capital account is completely open, allowing funds to invest both internally and internationally. Germany began reform in the 50s of last century. It was not until 80s that it completely abolished the restrictions on "selling all domestic bonds and money market instruments to non residents" and "Abolishing the withholding tax on interest income of non residents holding domestic bonds".

China allows RMB Reinvestment in the domestic market, allowing foreign investment institutions to enter the securities market under the control, the key is to allow domestic "financial wolves" to temper themselves in the international market, and abandon the Shanzhai individuals to plug up the hooligan exchanges. Otherwise, once there is a large-scale short selling mechanism, once the bond market is liberalized, the tragedy of Liu Qibing and other tragedies and losing the pricing power is not far away.

The internationalization of the renminbi is important, but it is never possible to bypass institutional reform.