countries in the world. From the investor point of view, the levels of FDI into China are very significant.” The first four months of 2022 saw an increase of 20.5% year-on- year to the CNY equivalent of US$70.67bn, according to data from China’s commerce ministry. China’s capital markets continue to experience intense transformation, with global holdings of Chinese stocks and bonds rising by about US$120bn in 2021, and still growing rapidly to cater to surging demand for new asset allocation and diversification. However, there are concerns that small outflows could be on the cards in 2022, given the likely market interest rate differentials between the US Federal Reserve and People’s Bank of China (PBOC). The environment, says Qiu, is “heavily regulated” with tight capital controls, but “a fast liberalisation process is under way”, and this brings opportunities for an international bank such as Deutsche Bank to support clients as they navigate this and decide how to position themselves while this process continues. In addition, he explains, China is a huge knowledge economy, and one of the largest internet economies as well.
RMB opportunities
By March 2022, China’s offshore currency, the renminbi (RMB), had retained its position
Figure 1: China 2022 growth forecast
20% 15% 10% 5% 0% -5% -10% -15%
2019
China is the number one trading partner of 130-plus countries in the world
Peter Qiu, Greater China Head of Corporate Coverage, Deutsche Bank
in SWIFT’s RMB Tracker as the fifth most active currency for global payments by value, with a share of 2.20%. “In terms of international payments excluding payments within the Eurozone, the RMB ranked seventh with a share of 1.47% in March 2022,” notes SWIFT. UNCTAD’s World Investment Report 2021 confirms that, despite the pandemic, flows to developing Asia were “resilient” in 2020 and inflows to China had increased by 21% to almost US$190bn. The expected increase in usage of RMB internationally could give investors greater confidence to invest in and hold RMB- denominated assets, despite the uneven
GDP growth, QoQ GDP growth, YoY
Forecast, QoQ Forecast, YoY
2020
2021
2022 Source: Deutsche Bank Research
progression of China’s capital account liberalisation effort. Tony Chao, Head of Securities Services China, Deutsche Bank, sees the internationalisation of RMB as an opportunity, as overseas institutional investors want RMB exposure in bonds and equity markets – and overseas governments want to invest in the currency as part of their wealth fund foreign currency reserves. Going forward, China will encourage the use of RMB for settlements and even as a trade currency. “This will further inject growth into China, because if you look at the actual usage of RMB from a transaction volume standpoint currently, it is quite low, considering the size of economy,” notes Chao. China is also looking likely to be the first major economy to issue a central bank digital currency (CBDC), as the PBOC ramps up trials for the e-CNY. “The CBDC development is extremely interesting because it offers a way for the currency flows to grow by bypassing the traditional mechanism,” says Chao. Erin Huang, Manager, Corporate Treasury Services, Deutsche Bank, agrees, adding that “with the two dominant mobile payment service providers (PSPs), Alipay and WeChat, facing increased regulatory oversight, a CBDC might be coming at the right time where, instead of a technology provider, the central bank can provide trust in digital money in the digital age”. Over the last decade, large Chinese corporate groups have emerged as global multinational corporations (MNCs), to the point that examination of the Fortune 500 list reveals more than 145 Chinese entries. In addition, western MNCs are now investing in China at full speed – Qiu points out that many of Deutsche Bank’s clients in Germany are looking to do more in China. “For instance, Volkswagen has about 35% of its total group business in China, and BMW now has 40% of its business there. These corporates are finding that the demand is often even bigger in China than it is in Germany – and it continues to grow.” To achieve this, cash management solutions such as the CNY Payment on Behalf of (POBO), and Collections on Behalf of (COBO), as well as a nationwide single window (China’s customs clearing system), and automated cross-bank liquidity management, are just some of the ways Deutsche Bank has supported Merck, the science and technology multinational, to maximise liquidity in China. And German automotive parts producer Continental now uses a cross-border RMB cash pooling solution from Deutsche Bank China.
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