Local government financing vehicles (“LGFVs”) reclaimed the spotlight during the pandemic as officials sought quick gains to reinvigorate a slowing economy. However, mounting off-balance sheet debt has become a key concern for policymakers who seek to confront a credit boom. As China’s property market woes begin to create ripple effects for LGFVs, policymakers are now tasked with balancing the need to front-run debt issues while preventing rampant defaults.
Author: Nathan Handwerker
The Evergrande crisis opened the world’s eyes to the global implications of sudden Chinese policy changes. In many ways, the case of Evergrande and other indebted property developers has been brought on by the over-corrective nature of China’s financial de-risking campaign. Now, compounded by an unfavorable economic environment, these financial risks may spell untold consequences for growth.
Following its first economic contraction since Mao Zedong held office, China has set precedent as the first major economy to return to growth. While the road to recovery has been riddled with bumps indicative of lopsided development, Q3 results, paired with well-targeted policy support, are painting a promising outlook for China’s development into Q4 and beyond.
In the third article in “The Rise of the Renminbi” series, TCG explores the role of bilateral swap agreements (BSAs) in China’s RMB internationalization ambitions. Despite Beijing’s hopes that the initiative would foster increased RMB-denominated trade, results have been lackluster thus far. Regardless, BSAs may play an increasingly important role in the sustainable offshore circulation of the redback over the long-term.
Continuing upon the first article in “The Rise of the Renminbi” series, TCG explores China’s strategic approach to the long journey towards RMB internationalization. China has intertwined its global RMB ambitions with the ‘One Belt, One Road’ initiative, a large-scale infrastructure development plan. By providing funding to economically underdeveloped nations, China aims to lead a strong global trade bloc through which new trade and investment can be facilitated in RMB.
In its push for an international RMB, China squares off against the “impossible trinity,” an economic principle stipulating that no open economy can simultaneously manage exchange rates, control monetary policy, and allow for full capital mobility. In recent years, China has attempted to juggle all three at once, but seen limited success. To reap the benefits of a fully internationalized RMB, China must consider the pros and cons of taking a bolder step towards one side of the triangle.
As Chinese factories open their doors, American buyers close theirs. Amid the backdrop of waning foreign demand, Beijing has introduced several critical trade-friendly policies intended to support the resumption of ordinary Chinese operations. Once the coronavirus outbreak subsides and global demand recovers, China may be the only viable trading partner left standing.
While the Phase One trade deal marks a milestone in the US-China Trade War, it will likely disappoint foreign businesses seeking improvements in intellectual property rights protections and enhanced market access in China. Regardless, there were a few positive points of progress in the Phase One trade deal that pave the way to address improvements on additional securities and protections for American businesses abroad in a subsequent ‘Phase Two’ agreement.