2014 China Faces Two Major Problems: RMB And Shadow Banking.

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< p > now, the "a href=" http://sjfzxm.com/news/index_c.asp "Davos agenda < /a" can not be divorced from the focus of China.

India is trying to make its voice heard by the world. This year, South Africa has begun to do so, but China does not have to bother with it at all.

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< p > Wang Yi, China's new foreign minister, is very confident in his conversation with Joseph Nye, an American political scientist.

He told us firmly that China is no longer "feeling the stones across the river".

The Chinese are very clear about their direction.

In answering questions about Japan and the disputed islands in China and Japan, he had a very tough attitude, and he really declared that he was the enemy.

From the moral point of view, the Yasukuni Shrine, which honours the Japanese war dead, is equivalent to commemorating the casualties of the Nazis.

It's totally unworthy of sympathy.

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< p > but in the financial field, the Chinese attitude is still rather hesitant.

Two major issues have been mentioned repeatedly, one is international and the other is domestic: < /p >

< p > < strong > 1. Is a href= "http://sjfzxm.com/news/index_c.asp" > RMB "/a"? Will it soon compete with the US dollar for the status of the global reserve currency? < /strong > /p >

< p > < strong > two is the rapid development of China's shadow banking become a hidden danger? < /strong > /p >

The "P" Renminbi has undoubtedly begun to play a global role, whether as a medium of exchange or as a means of value storage.

The people's Bank of China (PBoC) has allowed or even intends to promote offshore pactions in Hongkong and other regions, including London (currently smaller).

In the past, central banks generally preferred to keep local currency pactions within their jurisdiction.

But China has seen the advantages of offshore market development. On the one hand, it will allow China's own banks to get some practice in managing currency risk. On the one hand, it will avoid the embarrassing problem of RMB convertibility, and China has not yet solved this problem in China.

As a result, the renminbi has become the eighth largest payment currency in the world, but its share in the global payment market is still only a little more than 1%.

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To break this cramped situation, P needs a series of changes.

Economist Nouriel Roubini (Nouriel Roubini) lists a convenient list.

Chinese enterprises and individuals need greater freedom in the purchase of international assets.

That makes sense.

China's capital output is about $250 billion a year, almost all of which are invested in sovereign assets by government agencies, mainly the US Treasury bonds with low yields.

In addition, China needs to realize capital account convertibility and promote the development of RMB assets market, so that it can have deep and good liquidity and provide products with various maturities.

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When can China meet these conditions? The consensus of the Davos participants is "not for the time being". They also believe that although all these reforms are reasonable for China, the Chinese government will not act quickly.

I think so.

China's reform often brings surprises.

At present, the demand for RMB assets is huge.

Once the gate is opened, the market will usher in a surging wave of capital.

Will the US dollar remain the dominant reserve currency by 2030? This is a question raised to the audience at a meeting of the Davos forum.

Only 4 of us gave negative opinions.

I hope that when facts prove that we are right, I am still alive, so as to harvest the fruit of this ideological victory.

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< p > the participants also divided their views on the second issues.

The Chinese government has been practicing some form of financial repression for many years.

The beneficiaries are borrowers from the government, banks and large enterprises. The latter are mainly manufacturing enterprises, which are able to obtain cheap credit.

The biggest loser is a family with large amounts of cash.

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< p > worms are turning over now.

Individuals began to search for higher interest rates on the Internet. A series of products that were essentially money market funds provided them with a high < a href= "http://sjfzxm.com/news/index_c.asp" > interest rate < /a >.

At present, the rate of time deposits is generally 6%.

Those funds, after absorbing these funds, lend to other borrowers, many of which are local government platforms. They finance infrastructure: roads badly needed, but there are also unnecessary office buildings built by local government officials.

How safe is this system? Some say it's a typical bubble.

Once the real estate market falls, it may trigger a series of crashes - in American terms, these funds will be "below the nominal value".

Others argue that the problem is controllable, and that as long as the quality of the assets invested is good, there is no need to worry about the disintermediation of the banks.

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< p > I doubt that this situation will end in tragedy.

Last time, the local government carried out a lot of borrowing for the performance projects and the excessive borrowing of state-owned enterprises, which eventually led to a sharp rise in non-performing loans and damaged the stability of their balance sheets until the government set up Asset Management Co (bad bank) and provided them with new capital.

When the dust settles, we will see that there are some writedowns in the "a href=" http://sjfzxm.com/news/index_c.asp "shadow banking" /a system, but the scale may not be too alarming.

The Chinese authorities had better unlock the interest rate restrictions on bank deposits as soon as possible to prevent further expansion of the unregulated bubble.

A positive sign is that some Chinese scholars and investors are willing to discuss this issue openly, or at least discuss it with the Swiss version of the "Chatham House rules", which the participants freely speak at the conference, but confidentiality.

Last time, according to official caliber, there were no bad loans in China, but a large number of non-performing loans emerged suddenly.

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P may also help to clarify doubts by discussing the British government's Help to Buy at the annual conference in Davos, but this question is politically too sensitive to accept the scrutiny of foreigners.

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