With the Shanghai free trade zone, Beijing liberalizes financial markets in Yuan
Milan ( AsiaNews) - China's Central Bank has eased controls allowing firms in Shanghai's Free Trade Zone in (FTZ) to borrow Yuan held by oversea partners. It is a highly visible trial run towards more drastic liberalization measures destined to open China's economy up to greater reforms.
In a February 21 press conference
the bank outlined in detail how firms located in the Zone's approximately 30
square kilometers will be able to borrow from overseas counterparts in Chinese
currency. To
date the use of the Yuan by overseas accounts was limited to commercial trade.
In short foreign companies could only bill and settle trade bills in Yuan.
Under
the new guidelines the estimated 10 thousand enterprises in the FTZ will be
allowed to borrow overseas in Yuan for an amount up to 150% of their share
capital. In
addition, the ZFS banks have been invited to simplify their procedures in order
to facilitate the use of the Yuan from overseas accounts for their business
customers.
The new norms were greeted with
satisfaction by both banks and companies in so far as they clarify uncertainties
and allow lenders greater opportunities for financial transactions which are
already in demand and have strong potential.
The
FTZ was launched as an integrated area in September 2013. The Chinese governments' main goal is to
restore Shanghai as the main financial center of mainland China. Historically the city was the nations'
economic until the late
'40s , before the establishment of the Communist regime. Beijing
is aiming for Shanghai to drag mainland China's economy towards further
liberalization.
The FTZ , officially CSPFTZ - China ( Shanghai) Pilot Free Trade Zone - was born from the union of several previous specialized zones of which the first, the Waigaoqiao Free Trade Zone, dates back to June 1990, less than a year after the fall of the Berlin Wall Berlin. The aggregation of the different zones reveals the desire - by now explicit - to gradually evolve the Chinese economy from a being a command economy, as it is under communism, to one that is regulated by financial markets.
It is also quite easy to understand why - through the Shanghai hub - it is in China's interest to accelerate the liberalization of financial transactions denominated in overseas Yuan. This is in fact the only way to obtain a fully convertible Yuan. The ultimate goal is to make the Chinese currency a reserve currency as is the dollar, the euro and - to a lesser extent - the yen and the pound. The importance for a country to be able to issue its own currency to act as a reserve currency has long been clear to the United States, at least since the Bretton Woods agreements of 1943. America ran to the aid of Britain, which without U.S. intervention was doomed to failure, in exchange for a gradual dilution of their monetary sovereignty: it accepted a dollar at full value on par with gold as the primary value for all monetary reserves. As of August 15, 1971, with the abolition of the gold convertibility of the dollar, the process of currency substitution for countries linked to NATO had already been completed, but not for many other areas of the world. The advantages of having full monetary sovereignty has been made clear on several occasions in recent years: For decades, the U.S. has been able to maintain a budget deficit as well as a foreign trade and financial trade deficit, without having to undergo a currency crisis such as those which hit South East Asian nations in 1997-1998, followed soon after by Russia and Argentina or, more recently, many other emerging countries.
Today China needs the same
advantage enjoyed by the U.S. with the dollar because the path Beijing has
chosen to pursue since the 2008 global crisis, following the Lehman collapse, has
lead it to an imminent precipice. China's "stimulus" for domestic spending,
the chosen path since 2009, has not produce economic growth, but only greater
holes: uninhabited cities because they are too expensive and therefore there is
no demand, unused over-production, "whitewashed" inflation and a "shadow"
financial system close
to collapse.
The
miner from the Andean highlands or one of many southern African countries is
only too happy to be paid in crisp dollars for his daily fatigue. By
liberalizing overseas Yuan used in financial transactions, the Beijing
government wants that miner to be just as happy in the future to be paid in
crisp Chinese banknotes. China
is not an alternative to a bankrupt modernity in decline, it is no different
from America; it is just copying it with the aim of replacing it all together
or, at least, part of it.
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