Chan, the CEO of Hong Kong Exchanges and Clearing Limited, emphasized the importance of broadening the applications of China’s yuan to drive its international use. In a panel discussion during the World Economic Forum’s “Summer Davos” meeting in Dalian, China, she highlighted the need for the currency to have more diverse uses beyond a traditional store of wealth. Chan pointed out that investors seek a range of financial products such as stocks and bonds denominated in the Chinese yuan to enhance its attractiveness on the global stage.
One of the key hurdles in the path of yuan’s internationalization is the overwhelming dominance of the U.S. dollar in the global financial system. The imposition of U.S. sanctions on countries like Russia has spurred a quest for alternative currencies, but the yuan faces an uphill battle. Fred Hu, founder of Primavera Capital, pointed out that China’s financial markets are not as deep or as open as those in the U.S., posing challenges for the widespread adoption of the yuan. The currency’s restricted convertibility and lack of a fully open capital account inhibit its global reach.
A crucial aspect of enhancing the yuan’s international acceptance is the promotion of patient investing practices. Industry experts attending the Lujiazui Financial Forum in Shanghai emphasized the need for a more sophisticated investor base that focuses on long-term value creation rather than short-term gains. Economic stability and policy predictability were highlighted as key factors in nurturing a culture of disciplined investment in yuan-denominated assets.
Chinese firms seeking to access international capital markets face regulatory hurdles in both Beijing and Washington, D.C. The scrutiny has slowed down the pace of initial public offerings (IPOs) in recent years, limiting the opportunities for Chinese companies to tap into global liquidity. Despite these challenges, there are signs of a revival in the IPO market, with Hong Kong emerging as a preferred listing destination. Efforts to support new IPOs in Hong Kong have shown promising results, with a significant increase in listing applications and a growing pipeline of potential offerings waiting for favorable market conditions.
While China’s aspirations for the global use of the yuan are laudable, they face significant hurdles in the form of entrenched dollar dominance, regulatory complexities, and the need for diversified financial products. The journey towards internationalization will require concerted efforts to deepen the financial markets, nurture a patient investing ethos, and rejuvenate the IPO landscape. By addressing these challenges, China can make significant strides in enhancing the global standing of its currency and achieving its ambition of a more diversified financial ecosystem.