Dim Sum Bonds: The Offshore Renminbi (RMB)-Denominated Bonds

CHAPTER 1

New Market—Developments, Opportunities, and Challenges

1.1 INTRODUCTION

Since its economic reforms in late 1978, China's economic growth has been robust, at around 9 percent per annum despite signs of slowing down in the wake of the 2008 global financial crisis.1 The sustainable and solid economic growth has catapulted China into the second-largest economy after the United States, so it is natural that China seeks to play a bigger role in the world economy. One major policy goal of the Chinese government in the coming decade is to make its currency, the renminbi (RMB),2 a global reserve currency, and thus internationalizing the RMB has become a strategic goal.

Since March 2009, Governor Zhou of the People's Bank of China (PBOC) has urged the International Monetary Fund (IMF) to include the RMB as part of the special drawing rights (SDRs). A major obstacle to embracing the RMB as a global reserve currency is its limited convertibility outside China. The inclusion of the RMB as a global reserve currency along with the U.S. dollar and the euro by other countries requires that the RMB must be fully convertible into other currencies and widely circulated outside China for trade settlement.3 Thus, China has strategically designed economic policies vying to gain the global reserve currency status for the RMB.

China has a tight control on its capital account for monitoring the fund flows across its borders to avoid speculation and shocks from international markets, while the ...