Diamond Decade to follow the Golden Years

Premier Li, who delivered the expo’s keynote speech, confidently set a bilateral trade target of US$1 trillion for the end of 2020 – more than double the current $400 million – and named Asean as China’s priority for overseas investment, with an additional $150 billion likely to be invested over the next eight years. If the past 10 years have been a “golden decade” for the partnership, then the next 10 years should be a “diamond decade”, added Mr Li.

Of course our region also has the formation of the Asean Economic Community (AEC) at the end of 2015 to look forward to, but I am confident that even if this timetable slips the relationship with China will prosper as Mr Li projects. Certainly Thailand continues to be a priority destination for Chinese firms, and the interest of Chinese businesspeople in Thailand was very apparent during the expo. One of the subjects I touched on in my speech was the renminbi, as it is only a matter of time before the Chinese currency becomes a major global settlement currency. Over the past two years, the renminbi’s share of total international transactions has increased more than threefold, whereas other Asian currencies have stayed flat. 

In July, the Chinese government relaxed its rules on cross-border use of the currency, allowing companies to give loans in renminbi to their overseas affiliates. The same month, China signed a three-year swap agreement for 200 billion renminbi (or $33 billion) with the Bank of England to foster trading in London – another positive step for the wider adoption of the currency.

More recently, China announced plans to allow unfettered exchange of the currency in the country’s first free-trade zone in Shanghai. While the proportion of international trade conducted in renminbi is growing steadily, it is still less than 1 per cent, so it will be a while before the use of the currency has any meaningful impact on global and regional economies. 

But when it does impact, the benefits for Asean businesses will be significant, as they will be able to avoid exchange-rate risk and save on costs from intermediary banks by trading directly in renminbi rather than converting into third currencies. 

Asean banks will also gain new business by being able to offer liquidity, clearing and reporting services in the currency, as well as new financial instruments denominated in renminbi such as bonds and debentures.

The renminbi’s rise is just one aspect of China’s beneficial influence on Asean, as we head into the diamond era predicted by Premier Li.

 

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