May 2014 Volume 1, Number 1 International Monetary Review October 2017, Vol. 4, No. 4 Liu Jun Sino-US Trade and Investment Relationship Needs Fairness and Reciprocity Ding Jianping Time for Economies to Build Bulwarks Herbert Poenisch Creeping Gold Standard Xia Le Renminbi's Global Push is Forging Ahead Steve H. Hanke Bank Regulations: An Existential Threat? David Marsh The First Brexit Andrew Sheng and Xiao Geng Barbarians at the Monetary Gate Elliot Hentov Measures for Global Renminbi Growth Zhejiang University Academy of Internet Finance East or West, Home is Best?—Are banks becoming more global or local? 1 International Monetary AdvisoryIMI Board: Review (in alphabetical order of surname) Edmond Alphandery Yaseen Anwar Chen Yulu Chen Yunxian Lord Neil Davidson Steve H. Hanke Li Ruogu Li Yang Ma Delun Robert A. Mundell Joseph C.K. Yam Pan Gongsheng Su Ning Wang Zhaoxing Nout Wellink Wu Qing Xia Bin Xuan Changneng Introduction to the International Monetary Institute ( IMI ) Editorial Board: (in alphabetical order of surname) Ben Shenglin Cao Tong Established on December 20, 2009, IMI is a non- Michael Chang Chen Weidong Ding Jianping Ding Zhijie profit academic institution affiliated to China Robert Elsen E Zhihuan Financial Policy Research Center and the School of Tomoyuki Fukumoto Fariborz Ghadar Thorsten Giehler Yuksel Gormez Finance of Renmin University. Guo Qingwang Ji Zhihong Jaya Josie Rainer Klump Kees Koedijk Wolfgang Koenig Following the "general theory of macro-finance", Iikka Korhonen Il Houng Lee IMI aims to become a world-class think tank, Liu Jun Lu Lei David Marsh Juan Carlos Martinez Oliva focusing on the studies of international finance, in Jukka Pihlman Herbert Poenisch particular the international monetary system and Alain Raes Alfred Schipke Anoop Singh Sun Lujun RMB internationalization. Despite its relatively short Wanda Sung-Hwa Tseng Tu Yonghong history so far, IMI has established itself as a leading Wei Benhua Xiang Songzuo research institution and important forum, where Michael Zhang Zhang Jie Zhang Xiaopu Zhang Zhixiang industry leaders, policy makers and academic experts Zhao Xijun from home and abroad share their insights and expertise. Name of Journal: International Monetary Review Frequency of Publication: Quarterly Sponsor: International Monetary Institute of Renmin University of China Publisher: Editorial Office of International Monetary Review Editor-in-Chief: Ben Shenglin Associate Editors: Song Ke, Qu Qiang, Xia Le Managing Editor: Herbert Poenisch Associate Managing Editor: Dong Xijun Assistant Editors: Chen Wenye, Cheng Liuyi, Li Shiliang, Li Xuefei, Li Xueyi, Lu Kefan, Xu Peilan, Zhao Wenjing, Zheng Ze Editorial Office: International Monetary Institute, Renmin University of China Room 605, No. 59 Zhongguancun Avenue, Beijing 100872, China We only share the most valuable Tel: 86-10-62516755 financial insights WeChat Email: [email protected] Website: www.imi.org.cn May 2014 Volume 1, Number 1 CONTENTS China Sino-US Trade and Investment Relationship Needs Fairness and Reciprocity Liu Jun/01 Time for Economies to Build Bulwarks Ding Jianping and Yang Jie/03 Challenges Await China's Economy Hong Hao/05 RMB Internationalization Creeping Gold Standard Herbert Poenisch/07 Measures for Global Renminbi Growth Elliot Hentov/10 Renminbi's Global Push is Forging Ahead Xia Le/12 Financial Regulation Bank Regulations: An Existential Threat? Steve H. Hanke/14 Financial Risk Can’t Be Ignored Amid Restructuring Xiong Yuan/17 Code of Conduct Needed to Reduce Moral Hazard Li Honghan/19 International The First Brexit David Marsh/21 Financing Future Energy Herbert Poenisch/23 Emerging Markets Surpass Expectations Gary Kleiman/25 Sterling Lessons for Asia Zeti Aziz/27 Fintech Barbarians at the Monetary Gate Andrew Sheng and Xiao Geng/29 Digital Future for Sterling Victoria Cleland/31 Fintech Fills Funding Shortfall Greg Medcraft/33 Sustainable Development Are the Sustainable Development Goals Achievable? Andrew Sheng and Xiao Geng/35 Public Infrastructure Investment: A BRICS Perspective for Inclusive Sustainable Development Jaya Josie/37 Research Report East or West, Home is Best?——Are banks becoming more global or local? Zhejiang University Academy of Internet Finance/47 Working Paper Shadow Banking in China: Then and Now Xi Chao and Xia Le/54 Institutional Investors and the QE Portfolio Balance Channel Michael Joyce, Liu Zhuoshi and Ian Tonks/66 The Impact of Internet Sales Tax in a Search Model of Money: Some Analytical Results Dai Tiantian, Jiang Shenyi, Liu Xiangbo and Wang Wen/84 IMI News 3 International Monetary Review IMI顾问委员会 ：（以姓氏拼音为序） Edmond Alphandery、Yaseen Anwar、陈雨露、陈云贤、Lord Neil Davidson、Steve H. Hanke、李若谷、李扬、马德伦、Robert A. 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To date, China has accumulated huge amounts of foreign exchange reserves along its path of opening up to the outside world since the 1980s and market economy transition. As a result, the country now needs more channels for its capital to get abroad, and more tools to equilibrate its balance of payments. The most reasonable strategy is to achieve a capital account deficit over the current account surplus. That means China will have to invest more overseas, and it‘s likely the US will receive increasing amounts of that due to its commensurate size and scale. Those are the crucial two sides of the current global trade coin. If we close the normal and well-regulated channels, underground money flow will definitely thrive, which will then create huge amounts of what could aptly be described as ―dark matter‖ and leave us in a place where international policy cooperation and regulatory framework are gravely distorted. If that turned out to be the case, how could China possibly achieve its trade and balance of payments without being accused by the US of manipulating its currency somehow. I work at China Investment Corp (CIC), China‘s sole sovereign wealth fund. We have witnessed the dramatic increase in the number of Chinese firms making foreign direct investments (FDIs) overseas, particularly in the US. It is estimated that 70 to 80 Chinese deals were scrutinised by the Committee on Foreign Investment in the United States(CFIUS) last year, in sharp contrast to the single-digit number a decade ago. Within the investment circle, there is an oft-mentioned figure,10 per cent, which is generally considered to be the rough proportion of Chinese FDIs that have encountered difficulties in their CFIUS applications for security reasons. For Chinese investors, in addition to public market transactions, alternative and direct investments are well on course for a place in their foreign assets portfolios. CIC has a more urgent need than its peers due to its longer liability duration and asset diversification demand. Hence, achieving China‘s balance of payments via capital account outflow is a joint effort between China and its foreign counterparts, of which the US is the most crucial and strategic, taking the CFIUS issue into consideration. Trade and investment are interlinked, and fair This article first appeared in South China Morning Post on July 28, 2017. * Liu Jun, Member of IMI Academic Committee, Executive Vice President and Member of the China Investment Corp‘s Executive Committee. 1 exchange between countries is achieved through reciprocity. However, reciprocity is a loosely defined concept, and is absolutely not a mirror image. From different angles, the views might be quite different, if not completely opposite. Whenever there is a debate about the level playing field between China and the US, service sector openness is always targeted to justify one conclusion: China is much less open to the US, especially in financial sectors such as banking, insurance, and electronic payments. However, the fact is that the opposite may also hold true. For the US, the financial sector is purely a commercial industry, mainly serving as the intermediary market platform to facilitate economic activities and improve economic efficiency. All related business activities are mostly market-based. From the perspective of corporate finance, only 10 to 15 per cent of the required capital comes from commercial bank loans; the rest is raised through direct vehicles on the well-established and advanced capital markets. In contrast, China‘s social financing structure is highly skewed to indirect financing, with commercial bank loans accounting for over 70 per cent of overall corporate funding. Equity and bond issuances are way behind the curve. Therefore, there is a highly significant overlap between the financial sector and China‘s real industry, which means we should not speak of financial sector openness as a standalone issue. A holistic view is highly necessary for such discussions, since the financial sector exerts substantial impact upon the real industry, and in fact has a direct bearing on China‘s economic security and national security.