China has placed much emphasis on financial services in the country's 'One Belt One Road' initiative. Both Chinese and foreign investors need strong financial support in cross-border businesses. Chinese banks have responded to the call and have already expanded their network in foreign countries across Central and Eastern Europe. What can they provide for investors?
The 16 countries in Central and Eastern Europe make up one quarter of the countries included in China's "One Belt One Road" initiative. These countries have a combined population of about 100 million and an aggregate GDP estimated at more than 1 trillion U.S. dollars. Eyeing huge potential, Chinese investors are stepping up their investments. To meet financial needs, Chinese banks and financial institutions have followed up. Chen Huaiyu, executive president of Bank of China's Hungarian Branch, says the yuan's internationalization is a key factor.
"The internationalization of RMB is practically an essential part of China's One Belt and One Road initiative. It will pave the way for capital flows, trade and people-to-people exchange. For investors on both sides, the yuan's internationalization will provide more options for financing. For trade companies, it will reduce losses due to currency exchanges, facilitating settlement," Chen Huayu, executive president of Bank of China Hungarian Branch, said.
In October 2014, the British government issued bonds denominated in yuan, becoming the first foreign country in doing so. And now another European country is about to follow.
"The Hungarian government has ALREADY decided to issue bonds denominated in yuan in Chinese capital market, a move to diversify its foreign exchange reserves. It also plans to enter China's interbank market for financing and investment, aiming at preserving or even increasing the value of its forex reserves. Hungarian companies and individual investors will gradually accept the yuan after the government opts it for sovereign debt," Chen said.
Other countries in the region like the Czech Republic have also expressed interest in working with Chinese financial institutions.
For individuals like businessmen and tourists, the yuan's internationalization means easier trip experiences when visiting the other side.
"I give you an easy example. When you go abroad, you need to change yuan for dollar or euro and by the time you arrive, you need to change dollar or euro to the local currency. And probably, you need to change the local currency left at your hand back to, again dollar or euro, when you leave. These exchanges cost you quite a lot for an individual and is troublesome. These troubles will be saved if you can use the yuan directly. The yuan will definitely be accepted by the world as an international currency," Chen said.
An internationalized yuan will support companies and individuals from both sides in cross-border economic activities. And that will largely depend on the successful localization of Chinese financial institutions in central and eastern Europe.
