Policy framework to help build nation into global financial powerhouse

The internationalization of the renminbi, or the yuan, is expected to accelerate in the coming years, positioning China's currency as a credible option in the global financial system and boosting the diversity and resilience of the international monetary order, economists said.

China's macroeconomic and structural policies will provide fundamental support for renminbi internationalization and help make the Chinese currency more usable and RMB-denominated assets more investable as the country gears up to build itself into a more financially potent nation, they said.

Both the onshore and offshore RMB on Tuesday appreciated against the US dollar to the strongest levels in about 14 months due to greenback weakness and heightened corporate demand for foreign exchange settlement toward year-end. The central parity rate of the renminbi strengthened 54 pips to 7.0602 against the US dollar on Tuesday, according to the China Foreign Exchange Trade System.

READ MORE: Yuan poised for stronger global role

Ding Shuang, chief economist for China region and North Asia at Standard Chartered Bank, said that China's policy framework will help accelerate the building of a financial powerhouse as it aims to raise the yuan's status in the international financial system and ultimately make it one of the leading global currencies. The process will be relatively long and gradual, he added.

"On the structural side, China places greater emphasis on innovation-driven growth, enhancing economic resilience and growth potential through improvements in labor productivity. At the same time, macro policies will put more emphasis on countercyclical management and will avoid excessively loose policies, with the main objective being safeguarding the renminbi's purchasing power and strengthening international confidence in the currency," he said.

Foreign holdings of RMB assets rose to a 43-month high of 10.42 trillion yuan ($1.47 trillion) at the end of the third quarter from 10.38 trillion yuan at the end of the second quarter, said a Standard Chartered report issued last week.

Hunter Chan, an economist at Standard Chartered Bank (Hong Kong) Ltd, wrote in the report: "The recommendations for formulating the 15th Five-Year Plan (2026-30) reiterated the need to speed up the construction of a financially strong nation and advance RMB internationalization. Structural and macro policies are likely to be aligned to support this agenda, including making the currency more usable and RMB-denominated assets more investible."

Chan said policymakers are likely to become more proactive in building an ecosystem to broaden the use of the RMB in international trade, investment and financing, and develop a yuan-based cross-border payment system.

"The expansion of the RMB's role will depend on the pace of capital account opening. In our view, China's objective is to offer a credible alternative to reduce excessive reliance on the greenback rather than to challenge US dollar dominance," he said.

Currently, countries around the world are experiencing common shifts in industrial policy, trade policy, economic governance policy and social diplomacy policy, exacerbating the fragmentation and reconstruction of the global industrial and financial order. Against this backdrop, analysts at CITIC Securities said they believe that the going-global process of Chinese enterprises and the internationalization of the RMB will continue to accelerate.

With the rapid enhancement of China's industrial competitiveness, the export of technologies, brands and business models is particularly promising, said Yang Fan, chief macro and policy analyst at CITIC Securities.

ALSO READ: Resilient performance of China's economy secures RMB on steady track

"As Chinese enterprises expand globally, coupled with deep-seated concerns about the dollar system, the internationalization of the RMB also faces strategic opportunities. The opening up of the capital account and the construction of the RMB cross-border payment system could be crucial tools," said Yang.

Xiong Yi, Deutsche Bank's chief economist for China, highlighted that China's central government will further facilitate the RMB's use in trade and investment, enhance its role as an international funding currency, further open up the onshore financial market and enhance the Hong Kong Special Administrative Region's role as an offshore RMB financial center.

"We see great potential in RMB internationalization in the next few years, especially the development of the offshore RMB financing market such as Dim Sum bonds," said Xiong, adding that the yuan will likely emerge as a stronger currency in 2026-27, reversing the depreciation trend in the 2021-24 period.

Contact the writers at jiangxueqing@chinadaily.com.cn