BNP - Chi on China: RMB Internationalisation (2/2): You Can Run but You Cannot Hide from the Renminbi

Summary
- When investing in renminbi-denominated dim sum bonds, many investors have been pursuing a simple buy-on-dip strategy. It hinges upon a strong renminbi internationalisation initiative by Beijing, which also embeds an implicit guarantee on FX-risk-adjusted returns on renminbi-denominated assets.

- But if the People’s Bank of China is shifting away from renminbi internationalisation, as we argued in part 1 of this report, will this investment strategy still work? The answer is yes as long as Beijing still wants to internationalise the renminbi, even at a sharply slower pace.

- This begs other questions though: to continue internationalising the renminbi, is Beijing willing to continue loosening control of the currency and to incur more FX volatility? How will foreign investors view renminbi-denominated assets in light of Beijing’s policy challenges?