THE inexorable rise of the BRICs has been called into question in recent weeks, as the economic outlook for these developing markets has become more challenging.
Widespread protests in Brazil, a slowdown in Russia, a fall in the value of the Indian rupee and credit tightening in China all demonstrate – if proof were required – that each of these countries faces its own individual challenges over the coming years. It is important to remember, however, that this is all relative. The UK government would understandably be delighted with the kind of growth figures being reported in the BRIC countries.
In order to succeed in the global race, the UK needs to be plugged into these global markets. That is why I am currently on a visit to Shanghai and Beijing to strengthen links with our Chinese counterparts.
If China is to successfully meet its international ambitions, there is a need for more open capital markets, a strong offshore renminbi market, and better developed professional services.
As the leading international financial centre, London is uniquely placed to help support these objectives through closer partnership. Indeed, we are already supporting the internationalisation of the renminbi through a major initiative launched by the chancellor just over a year ago.
A City of London Corporation report recently showed that the London market continues to grow significantly in terms of both business volumes and the range of renminbi products provided by London-based banks. Import and export financing totalled 33.6bn yuan (£3.6bn) in 2012, up by 100 per cent compared with the previous year. The volume of Letters of Credit and other loan guarantees also grew 13 times to 4.7bn yuan over the same period.
Increased use of renminbi to finance international trade, and greater liquidity in the London market, brings considerable benefits for UK firms doing business with China. Most importantly, it can reduce their exposure to currency risk by trading directly in renminbi, rather than converting it into dollars and then into sterling.
The formal signing last week of a three-year sterling/renminbi currency swap line between the Bank of England and the People’s Bank of China will help to support market development even further and faster.
China’s economic transformation over recent decades – underlined by its ascent to the world’s second largest economy – has been nothing short of miraculous. The country’s approach to adapting to this change can perhaps be best understood by Deng Xiaoping’s famous maxim of crossing the river by feeling the stones – or taking change carefully step-by-step.
The deepening of financial ties between China and the UK is an important step towards both countries crossing the choppy economic waters safely.
Mark Boleat is policy chairman at the City of London Corporation.