RMB internationalization is a critical factor for foreign investors. How do you assess the development of the RMB?
Dr Axel Weber: 'China is making progress with RMB internationalization by opening up onshore markets, building market infrastructure, entering the SDR system, and moving into the global index benchmarks.
But making the RMB an international investment currency requires more efforts to create onshore derivative markets, allow currency convertibility, and build liquid markets. These goals will take time to achieve but, again, we strongly believe that China is committed to them.'
Dr Zhu Min: 'The financial crisis in the 1990s taught us the dangers of being too dependent on external USD-denominated financing. For China being a big economy, internationalization is a very important strategic decision.
The good news though is that China is making progress. In Shanghai today, foreign companies in the free-trade zone can settle in RMB and they are willing to do it to save on hedging and processing costs.
International reserve pools of RMB are growing, for example with the French and German central banks adding RMB into their reserves, and these are all good things for the internationalization process and show that China is moving in that direction.'
What would you say to investors who are concerned about volatility in onshore markets, and particularly volatility in the currency?
Dr Zhu Min: 'We are moving into a new world and volatility is a good thing for China.
If there's no volatility it means the authorities are intervening and that's not good for China and certainly not good for international investors.'
Do you still consider China an emerging market? Do you think there should be an argument made for China to be a standalone allocation within the global mix?
Dr Axel Weber: 'China has emerged from being a less-developed economy to being at the forefront of development in many areas, like in technology and artificial intelligence. So should you overweight China if you want a growth portfolio and does it warrant a standalone allocation? Absolutely yes. On equity markets alone, China benchmarks have outperformed global indices on an annualized basis since late-2005 and there's a strong growth outlook as urbanization, consumer demand, and industrial upgrading play out.
But China's markets come with volatility and that means global investors need onshore expertise to both manage market volatility and uncover the growth opportunities. At UBS, that's where we see huge potential to bring our expertise and act as a 'superconnector' between offshore clients and the growing set of opportunities onshore in China.'