ANNUAL REPORT

dkrause on DSKHT7XVN1PROD with USCC
170
quotas, approvals, and ceilings.* In February 2016, the State
Administration of Foreign Exchange further loosened QFII restrictions
by easing filing procedures for quotas and restrictions
on remitting funds in and out of China. 248 While the Chinese
government has expanded the quota and relaxed restrictions
on capital mobility, additional reforms are necessary to
entice greater foreign investment. 249 Less than 2 percent of A-
shares † are foreign owned. 250 In June 2016, the U.S.-based
stock market index provider MSCI once again delayed inclusion
of China’s A-shares into its Emerging Markets Index, citing
concerns over the suspension of stock trading during last
year’s stock crisis,‡ limitations on capital mobility, and the 20
percent monthly repatriation cap. 251 Beyond the partial opening
of access, foreign and domestic investors remain concerned
about ‘‘weak corporate governance, limited transparency, weak
auditing standards, and shoddy accounting practices’’ in firms
listed on China’s stock markets. 252
• Promoted the internationalization of the RMB:§ Dr. Prasad explained
that the Chinese government encourages the international
use of the RMB by promoting the settlement of trade
transactions with the RMB, allowing the issuance of nearly
$400 billion worth of RMB-denominated bonds in Hong Kong,
and permitting select banks to offer offshore RMB deposit accounts.
253 The PBOC has established bilateral swap arrangements
with 34 other central banks and also sanctioned 17 offshore
financial centers outside Hong Kong and Macau. 254 In
November 2015, the IMF executive board approved the expansion
of the Special Drawing Rights basket to include the RMB
beginning in October 2016. 255 According to Dr. Prasad, the rising
prominence of the RMB will gradually erode the dollar’s
dominant role as a unit of account for international trade
transactions and medium of exchange for settling cross-border
financial transactions, but will not seriously challenge the dollar’s
dominant reserve currency status. 256 Nevertheless, the
RMB is still only the fifth most active currency for global payments
and accounts for 1.9 percent of global payments as of
July 2016, compared with the U.S. dollar at 41.3 percent and
the euro at 31.3 percent. 257
* For background on the QDII and QFII, see Nargiza Salidjanova, ‘‘The RMB’s Long Road to
Internationalization,’’ U.S.-China Economic and Security Review Commission, September 22,
2014; and Eswar S. Prasad, ‘‘China’s Efforts to Expand the International Use of the Renminbi,’’
(prepared for the U.S.-China Economic and Security Review Commission), February 4, 2016, 82–
89.
† China’s A-shares are RMB-denominated equities that can be purchased and traded on China’s
Shanghai and Shenzhen stock exchanges. Previously restricted to domestic Chinese investors,
foreign investors since 2002 have been gradually allowed access to the ‘‘A’’ shares through
the QFII, RMB qualified institutional investors (RQFIIs), and Shanghai-Hong Kong Stock Connect.
Eswar S. Prasad, ‘‘China’s Efforts to Expand the International Use of the Renminbi,’’ (prepared
for the U.S.-China Economic and Security Review Commission), February 4, 2016, 47–
51.
‡ For more information on China’s stock market instability, see Nargiza Salidjanova, ‘‘China’s
Stock Market Meltdown Shakes the World, Again,’’ U.S.-China Economic and Security Review
Commission, January 15, 2016; and Nargiza Salidjanova, ‘‘China’s Stock Market Collapse and
Government’s Response,’’ U.S.-China Economic and Security Review Commission, July 13, 2015.
§ For more information on RMB internationalization, see Eswar S. Prasad, ‘‘China’s Efforts
to Expand the International Use of the Renminbi,’’ (prepared for the U.S.-China Economic and
Security Review Commission), February 4, 2016.
VerDate Sep 11 2014 12:16 Nov 02, 2016 Jkt 020587 PO 00000 Frm 00080 Fmt 6601 Sfmt 6601 G:\GSDD\USCC\2016\FINAL\06_C1_C2_M.XXX 06_C1_C2_M