Carmen Ling: “Mauritius can aspire to become the RMB trading hub for Africa”

The Standard Chartered Bank Mauritius is hosting this Thursday a thought leadership event themed “Renminbi internationalisation – the way forward amidst volatility and uncertainty”. The bank’s Global Head RMB Solutions assesses the strategic nature of RMB for Mauritius in the interview below.

BUSINESSMAG. What will be the main issues around RMB that you will be addressing during the conference?

First, let me put the conference into context. As a bank operating in the most dynamic and emerging markets in Asia, Africa and the Middle East since more than 150 years, we have seen the evolution and the growing importance of the Renminbi (RMB) for our clients. Today, with Mauritius emerging as an International Financial Centre (IFC) for Africa, and with its strong historical and cultural links with China, it can legitimately aspire to become the RMB trading hub for Africa.

Standard Chartered Bank, as a forefront leader in the development of Mauritius as an emerging International Financial Centre and a hub for investment into Africa, wish to support Mauritius in this endeavour. This conference is well timed in updating our stakeholders on the merits of using Renminbi as an investment and trade currency, particularly with the IMF’s recent announcement to include the currency as part of the SDR basket. The topics will include the roadmap and outlook of RMB Internationalisation, discussion around what has happened in the RMB FX market since the 8.11 FX reform in China last summer, as well as an overview on China’s macro economy.

BUSINESSMAG. What makes Mauritius, as an emerging IFC, a good candidate to operate a RMB hub for Africa?

We believe Mauritius, as an emerging IFC, has strong potential to be a valuable hub for Renminbi in Africa, thanks to its strategic location and robust regulatory framework. Other competitive advantages include free flow of capital, as well as extensive bilateral and multilateral relationships across the African continent. We also believe that Mauritius operating a RMB hub for Africa would further enhance itself and strengthen its positioning as an international financial centre, especially in capturing the trade, investment and financial flows between Africa and Asia.

BUSINESSMAG. What can be done to push more Mauritian investors towards the RMB, especially given that it will now be in the IMF reserve basket?

At this stage, raising awareness is the most important thing to do. China is the world’s second largest economy with a stable outlook at 6-7% GDP growth, thus providing valuable potential in investment and trade partnerships. But there should also be sufficient available investment channels with ease of execution to entice investors to make the investment choice. So I think there should be a three-pronged approach to encourage investors to see the merits of RMB. These are, namely, an increase of understanding around the benefits of investing in China; outlining the available investment channels, either via direct access into the China onshore market or offshore investment instruments; and assistance and guidance in how to execute these investments, especially under the context of accessing the China market directly.

BUSINESSMAG. What are the advantages of raising capital in RMB?

Issuers would normally look to raise capital where funding is cost effective, and one can diversify the investor base. The Panda Bond market (overseas entities issuing RMB bonds in China), which has recently opened, is gaining popularity due to the cheaper cost of funding for RMB (as opposed to the offshore Dim Sum bond market), and for the purpose of widening an investor base. Standard Chartered Bank Hong Kong seized the opportunity to issue a Panda Bond in December last year. We continue to see issuers raising RMB funds in the Dim Sum market, especially financial institutions making use of the swap market to achieve better cost of funds.

BUSINESSMAG. How can RMB be of interest to Mauritius and domestic banks given the changing structure of the Chinese economy – from a production-based to a more financial services-oriented one?

While China’s economy is going through a structural change to shift from an investment and export-driven economy to a more consumption driven-market, we are seeing more and more Chinese companies going global, either through organic expansion or acquisition. With moderating economic growth, many cash-rich Chinese companies are looking for overseas investment opportunities, and Africa is an attractive destination. In January 2016, the China ODI (outward direct investment) volume has increased 18%. With Mauritius being an investment hub for Africa, with investment-friendly regulation and policy, the country is well placed to capture these ODI flows.

In addition, as its economy is moving towards a service sector / tertiary industry-led based, the middle class population in China will be broadened, hence there will be a change in consumption behaviour along with a higher per capita income. Such consumption power will unleash new demand for products and services, such as overseas travel for business, leisure and investment. On the other hand, China continues to reform its financial system and open its capital markets, offering investment opportunities for global investors/issuers.

In a nutshell, China will continue to be a key engine to drive global economies, with the Renminbi gaining greater acceptance and adoption, ultimately bringing opportunities for the financial / banking industry in the areas of FX, cash, trade, investment, financing and wealth management. We have seen how Hong Kong, London, Singapore and Korea have successfully evolved into key RMB centres through the support of their central bank/monetary authorities in conjunction with the efforts of the financial/banking industry to capture the opportunities of the RMB internationalisation.

BUSINESSMAG. What can be the consequences of the RMB devaluation, especially for international economies and Mauritius?

RMB will no longer be a currency with only one way going up, but is behaving more like any other international currency with a two-way volatility. Rather than being the cause, the devaluation of RMB is actually a consequence of a multitude of factors including economic slowdown in China, US rates going into an upward cycle and the FX reform aiming to make the currency exchange under a more market-driven mechanism. We have already seen the impact of China’s economic slowdown on global economies as its GDP growth accounted for 25% of the world’s total GDP growth. However, we are also seeing China’s economy transforming into a more balanced economy that will be led by the service sector. The aim is to double its GDP as well as disposable income per capita by 2020 using the 2010 baseline. This will certainly bring positive impact to global economy with the creation of wealth and demand by the more affluent Chinese population and a broader middle class.

BUSINESSMAG. What are the perspectives for the Chinese economy in 2016 after a slowdown in 2015?

As mentioned above, China is going through a structural shift in its economy. While China’s GDP will slow down, the quality of its economy is moving towards a service sector/tertiary industry led economy. We expect 2016 real GDP growth at 6.8%, supported by a likely proactive fiscal policy that could result in stronger investments. China’s services sector has been growing above 8% throughout 2015, and has started to contribute more than 60% of China’s growth. The manufacturing sector, however, is likely to remain under pressure in the foreseeable future. Exports may be supported by the weaker currency, but still faces strong headwinds of weak global demands.