Experts Discuss China’s Economic Strategies

Experts suggest that the upcoming steps will be incremental.

“The Chinese government is probably going to concentrate on broadening currency swap agreements with its trading partners, as well as increasing the use of the renminbi in trade settlements, particularly with commodity exporters,” Su pointed out.

Additionally, Su mentioned that “extending renminbi-denominated lending to countries in the Global South appears to be in the cards,” adding that China is positioning itself as a viable provider of alternative financial services for nations facing U.S. sanctions, like Iran.

According to ING’s Song, “mitigating vulnerability to financial coercion” continues to pose a challenge.

“If a nation were cut off from SWIFT, would it still function relatively normally?”

Song also noted that “keeping relative currency stability is beneficial for internationalization,” explaining that significant fluctuations raise hedging costs and create uncertainty, which diminishes the appeal of holding the renminbi as a reserve currency.

However, Lin from Asia Group pointed out that the speed of liberalization is limited by the risk of capital flight.

“Many Chinese individuals wish to transfer their money overseas, if at all possible,” Lin said.

He warned that if China were to use up its foreign exchange reserves, it would lose the ability to import dollar-based goods, attract foreign investment, and defend its currency.

That scenario would be a “nightmare for China,” he added.

For Lin, enhancing the currency relates to more than just trade and finances.

“When we discuss currency easing, it’s not merely about encouraging the world to transact with China in renminbi; there’s a political aspect involved,” he explained.

As more nations begin using the renminbi for investments and financial activities, Beijing could guide capital towards its strategic priorities, indicating that currency liberalization acts as a geopolitical tool, he said.

“This push for currency liberalization essentially serves as a means for China to enhance its influence not only in trade and security domains but increasingly in monetary policy as well.”

Yet, he cautioned that this journey will be lengthy.

“I believe it’s likely to occur; China has hinted as much, but it will likely take years. Even now, they remain quite cautious about loosening capital controls.”