China: Turning Away From the Dollar – Only the US Investor Remains Oblivious

By James Kynge and Josh Noble

Questions remain over the global economic impact of Beijing’s efforts to reduce its financial reliance on the US

When an economic theme goes global, Hollywood is never far behind. In the futuristic thriller Looper, retired hit man Bruce Willis travels back in time from the year 2074. Upon meeting his younger self, he advises him to stop learning French and instead head to China. In the future, Shanghai is the centre of the world and the renminbi the currency of choice.

While time travel and flying cars may not be on the horizon, at least one aspect appears closer to reality and movie bad guys are not the only ones eager to get their hands on a few “redbacks”. An “age of Chinese capital”, as Deutsche Bank calls it, is dawning, raising the prospect of fundamental changes in the way the world of finance is wired. Not only is capital flowing more freely out of China, the channels and the destinations of that flow are shifting significantly in response to market forces and a master plan in Beijing, several analysts and a senior Chinese official say.

In a nutshell, three big and inter-related changes are under way. China’s appetite for US Treasury bonds, a cornerstone of the global economy for more than a decade, is waning. Beijing is ramping up its overseas development agenda to boost financial returns and serve key geopolitical interests. The promotion of the renminbi as an international currency is gradually liberating Beijing from the dollar zone, providing it with more latitude to open up to foreign portfolio investment flows.

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